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A  TREATISE 


ON  THE 


LAW  OF  STOCK-BROKERS 


AND 


STOCK-EXCHANGES 


BT 

JOHN    R.    DOS    PASSOS 

OK   THK    NKW    YORK    liAK 

Author  of  "  Interstate  Coinmeree  Act,"  "  Commercial  Trusts, 
"  The  Anglo-Saxon  Century,"  etc. 


SECOND  EDITION 
In  two  volumes 


Vol.   I. 


THE    HANKS    LAW    PITRLISFIING    CO. 
21    MlIKItAV  STMKKT,  N'KW   YORK 


LIBRABY 
or 

EDWARD   UCMU9TCR 


7' 


CoPYKiGirr,  1882, 
By   JOHN    K.    DOS   PASSOS. 


Copyright,  1905, 
By   JOHN    R.    DOS   PASSOS. 


07407^ 


PREFACE. 


According  to  a  computation  made  in  a  financial  journal 
of  New  York,  tlie  sales  of  shares,  alone,  of  corporations,  in 
the  year  1904,  upon  the  New  York  Stock  Exchange,  reached 
the  enormous  total  of  about  one  hundred  and  eighty  mil- 
lions (180,000,000),  representing  in  cash,  at  one  hundred 
dollars  per  share,  the  sum  of  eighteen  billions  of  dollars 
($18,000,000,000). 

When  the  aggregate  transactions  for  the  same  period  of 
the  London  Stock  Exchange,  the  Paris  Bourse,  and  the 
other  well-known  bourses  of  the  Continent  are  added  to 
those  of  the  New  York  Stock  Exchange,  it  will  be  appreci- 
ated that  the  capital  involved,  yearly,  in  the  business  of 
dealing  in  shares  and  other  securities,  reaches  figures  which 
are  almost  too  vast  for  human  comprehension.  If  one 
wishes  to  profitably  study  tiic  financial  and  coninicrcial 
history  of  this  country,  let  him  put  in  juxtapo.sitioii  the 
li.sts  of  the  New  York  Stock  Exchange  of  1882  and  1904— 
the  period  intervening  between  the  publication  of  the  first 
and  second  editions  of  thi.s  work.  They  are  worth  voliinics 
of  general  history.  In  view  of  these  facts,  the  occupation 
of  the  Stock-broker,  and  the  dealings  on  the  Stock  l"]x- 
changes,  have  become  subjects  of  the  profoundest  (!()ncern 
and  of  a  public  interest  which  increases  ev(>ry  year.  No 
matter  how  true  it  may  formerly  have  been  that  the  opcra- 

iii 


IV 


Preface  to  the  Seooiul  Edition. 


lions  on  the  Stock  l'>xclian<;(>  witc  of  interest  merely  to  the 
professional  speculator,  to-day  the  dealings  of  these  bodies 
are  of  national  and  absorbing  importance.  Shares  and 
bonds  of  conmiercial  corporations  now  constitute  permanent 
investments  in  all  countries;  and  real  estate,  at  one  time 
the  sole  source  of  investment,  has,  in  this  respect,  fallen 
into  a  secondary  rank.  The  securities  of  railroad  and  other 
commercial  companies  not  only  offer  attractive  and  regular 
returns  to  capital,  hut  the  shares  may  be  carried  about  by 
their  owners  wherever  they  may  go,  with  more  safety  than 
money,  defjang  alike  the  depredations  of  criminals,  the 
ravages  of  time,  or  the  destruction  of  the  elements. 

Brief  allusion  to  some  striking  features  of  Stock  Ex- 
changes is  pertinent  in  this  connection. 

All  securities  which  have  been  admitted  to  their  lists  can, 
as  a  general  rule,  be  readily  converted  into  cash.  Irrespec- 
tive of  the  demands  of  regular  investors,  and  of  the  pro- 
fessional operators  outside  of  the  exchanges  (factors  of  the 
greatest  magnitude  in  these  dealings),  there  is  a  trading  ele- 
ment inside  of  those  bodies — represented  in  the  London 
Exchange  by  the  "Jobber,"  and  in  the  New  York  Ex- 
change by  the  "  Scalper  "  or  "Trader  " — which  is  ready  at 
a  moment's  notice  to  deal  in,  and  pay  for,  any  number  of 
shares  that  may  be  offered  for  sale;  and  which,  in  times  of 
exciting  panics,  constitutes  a  breakwater  against  great 
financial  disasters.  It  is  universally  conceded  that  without 
the  existence  of  great  public  marts,  like  the  New  York  and 
London  Stock  Exchanges,  the  marvelous  development  and 
progress  of  this  country  would  not  have  been  attained. 
And  this  general  truth  was  recognized  by  Bramwell,  L.  J., 


Preface  to  the  Second  Edition.  v 

in  a  leading  case  in  England,  in  which  the  transactions  of 
the  London  Stock  Exchange  had  been  violently  assailed  as 
mere  gambling  devices  and  in  hostility  to  the  true  interests 
of  the  comitry,'  and  who  in  sustaining  those  operations 
said:  "  I  am  not  sure  that  it  is  a  disadvantage  that  there 
should  be  a  market  where  speculation  may  go  on,  for  it  is 
owing  to  a  market  of  that  kind  that  we  now  have  so  many 
railways  and  other  useful  undertakings." 

Xo  one  will  claim  that  Stock  Exchanges  are  institutions 
of  unqualified  good  and  benefit  to  the  community.  They 
have  their  evil  side.  But  it  is  beyond  the  scope  of  this 
work  to  discuss  that  branch  of  the  subject. 

In  May,  1877,  a  commission '  was  appointed  in  England 
by  royal  decree  to  inquire  into  the  origin,  object,  present 
constitution,  customs,  usages,  and  mode  of  transacting 
business  on  the  London  Stock  Exchange,  which  reported, 
in  July,  1878,  after  a  careful  study  of  the  subject,  among 
others,  the  following  suggestions  to  Parliament,  then  in 
session : 

"  The  main  object  of  the  association  appears  to  be  the  easy  and  ex- 
peditious transaction  of  business,  and  the  enfurcenietit  among  them- 
selves of  fail  dealing. 

"  Our  opinion  is  that,  in  the  main,  the  existence  of  such  an  associa- 
tion, and  the  coercive  action  of  the  rules  which  it  enforces  upon  the 
transacticjn  of  business,  and  upon  the  conduct  of  its  nieinbcis,  have 
been  salutary  to  the  interest  of  the  public 

"  Wo  recognizt!  a  ^jreat  i>ublic  advantage  in  the  fact  that  thoso  who 
buy  or  sell  for  the  imblic  in  a  market  of  such  enormous  magnitude  in 
I)oint  of  value  should  be  bound  in  their  dealings  by  rules  for  the  en- 
forcement of  fair  dealing  and  tlie  re])n'Ssion  of  fraud,  capable  of  alTonl- 

'  Thacker  v.  Hardy,  L.  H.  1  Q.  H.  Div.  fl,sr>,  C.g.i.  And  a  kindred  re- 
mark was  niufle  l)y  Haker,  J.,  in  X.  Y.  &.  Chicago  Stock  K,\clmnge  v. 
Chicago  Hoard  of  Trade,  127  Illinois,  l.W. 

'  Se«;   /lOHt,  p.  OO'J. 


vi  Preface  to  llic  Second  Edition. 

ing  relief  and  oxercisiny  restraint  far   nioro  i)rompt,  and  often  more 
satisfactory,  tliau  any  within  the  reach  of  the  courts  of  law." 

The  commission  closes  its  report  us  follows: 

"  It  is  recorauiended  by  us,  not  because  we  have  any  reason  to  think 
that  the  present  association  has  at  all,  in  the  main,  fallen  short  of  its 
duties  in  the  past,  but  ratiior  for  the  purpose  of  streuglhouiug  its 
hands  and  increasiufj;  its  efficiency  in  the  future,  that  tlio  London  Stock 
Ex(;han<j:e  be  incorporated  either  by  royal  charter  or  an  act  of  Parlia- 
ment; and  if,  i)reserving  the  element  of  self-^roverument,  additional 
weight  could  be  given  to  the  institution,  and  additional  consideration 
and  reliance  be  bestowed  upon  its  members,  by  investing  the  existing 
association  with  a  public  character  in  the  form  of  a  charter  of  incor- 
poration, we  are  of  opinion  that  it  would  bo  a  sensible  gain  to  the 
public." 

At  various  times  within  the  last  century  and  a  half,  the 
legislatures  of  different  Countries  and  States,  acting  under 
a  spasmodic  public  sentiment,  have  sought  to  prevent  spec- 
ulation in  securities  and  stocks  by  enacting  stringent  and 
severe  laws  against  such  practices,  generally  known  as 
"  Stock-jobbing  Acts."  But,  as  will  be  seen  in  the  fifth 
chapter  of  this  work,  such  laws  have  been  vain  and  futile; 
they  have  been  openly  and  persistently  deified,  and  at 
length,  so  far  as  regards  England,  and  the  States  of  New 
York  and  Pennsylvania,  tlicy  liave  been  repealed.'  In 
face  of  this  experience,  it  is  not  too  much  to  affirm  that, 
at  this  day,  when  it  is  almost  impossible  to  distinguish 
legitimate  investment  operations  from  pernicious  specula- 
tions, the  subject  is  beyond  legislative  prevention.  The 
evil  of  excessive  speculation  carries  its  own  corrective;  the 
blow  falls  upon  its  own  authoi-s  rather  than  on  the  general 
community;  and,  although  prices  or  quotations  may  be  af- 
fected or  diverted  by  these  gambling  transactions,  to  the 
temporary   inconvenience   of  the   legitimate   investor,  the 

'  See  Chap.  V,  p.  487  et  seq. 


Preface  to  the  Seeond  Edition.  vii 

inevitable  laws  of  true  \alue  will  assert  themselves,  and  the 
tide  again  flow  on  in  its  regular  channel. 

Yet  it  may  well  be  that  occasions  may  occur  when  it  will 
become  the  duty  of  the  General  or  State  Governments  to 
intervene  in  Stock  Exchange  transactions.  When,  and  un- 
der what  circumstances,  such  interventions  may  be  neces- 
sary, it  is  quite  useless  to  speculate.  The  latent  legal  power 
exists,  if  events  should  occur  which  may  unhappily  require 
its  exercise. 

A  Stock  Exchange  fulfils  another  highly  important  mis- 
sion in  forming  a  barrier  between  the  public  and  many  en- 
terprises and  schemes  which  are  constantly  springing  up  in 
our  midst,  some  of  which  are  manifestly  corrupt,  and  others 
visionary  and  extravagant;  but  all  being  calculated,  by  al- 
luring or  deceitful  representations,  to  induce  the  public  to 
invest  in  them.  For  the  prevention  of  such  schemes  each 
of  the  Stock  Exchanges  has  established  rules  against  the 
listing  of  securities  without  a  previous  rigid  examination 
by  committees  appointed  for  this  purpose,  consisting  of 
well-trained  and  experienced  Brokers;  and  while  at  times, 
as  must  be  expected  from  a  variety  of  causes,  these  rules 
are  eluded  and  defeated,  yet,  in  the  main,  the  character  of 
securities  which  are  enrolled  on  the  list  represent  fair  busi- 
ness enterprises,  and,  although  not  always  fulfilling  the 
hopes  and  expectations  of  their  promoters,  are  nrn'ertheless 
the  fit  subjects  of  speculation  or  investment. 

To  a  fli.scu.ssion  of  the  legal  nature  and  character  of  Stock 
lOxchanges,  to  a  history  of  the  various  transactions  made 
in  such  places,  and  to  a  consideration  of  the  reciprocal 
legal  rights  and  duties  which  are  evolved  from  the  relation 


viii  Preface  to  the  Second  Edition. 

of  Broker  and  Client,  as  well  as  to  the  nature  and  kind  of 
securities  dealt  in  on  the  Exchanges,  I  have  devoted  this 
work.  In  1875,  discovering  that  there  was  no  legal  treatise 
covering  the  whole  subject,  I  began  the  collection  of  mate- 
rials, which,  after  great  labor  and  expenditure  of  time,  were 
shaped  into  the  first  edition  of  this  work  pul)lished  in  1882. 

The  ground  covered  in  tlie  present  work,  when  the  first 
edition  was  issued,  was  entirely  new,  and  hence  I  did  not 
hesitate  to  discuss  the  various  questions  with  freedom ;  but, 
as  I  trust,  without  dogmatism.  I  take  some  pride  in  the 
fact  that,  so  far  as  I  have  ascertained,  the  statement  of 
principles  by  me,  as  applicable  to  different  questions  em- 
braced in  the  treatise  during  a  period  of  twenty-two  years, 
has  never  been  questioned  by  the  courts  before  which  they 
have  come  for  determination. 

The  new  edition  contains  about  4,692  cases.  The  old 
edition  contained  only  2,277.  So  that  there  have  been 
added  2,415  cases,  an  enormous  increase  of  litigation  in 
twenty-two  years,  making  nearly  200  cases  more  than  were 
decided  during  the  previous  two  hundred  years. 

In  the  preparation  of  the  second  and  third  chapters  of 
this  edition  I  beg  to  acknowledge  the  great  services  ren- 
dered by  my  partner,  Edmund  Francis  Harding,  Esq.,  who, 
unfortunately,  was  prevented  from  continuing  his  work  by 
exacting  professional  labors,  and  in  the  whole  work  I  have 
had  the  co-operation  of  P.  J.  Power,  Escj.,  without  whose 
care  and  continuous  labor  this  edition  would  not  yet  have 
seen  the  light  of  day. 

John  R.  Dos  Passos. 

January  2,  1905. 


CONTENTS. 


TABLE  OF  CASES 


PAGE 

xvii 


CHAPTER  I. 

INTRODUCTION. 

ORIGIN  OF  STOCK-BROKERS  AND  STOCK  EXCHANGES 

CHAFIER   II. 
LEGAL  NATURE  OF  STOCK   EXCHANGES;  CHARACTER 
AND  INCIDENTS   OF   MEMBERSHIP   THP:REIN:    AND 
RULES  AND  REGULATIONS  THEREOF. 

Organization  of  Stock  and  otlier  Exchanges 


13 


General  Legal  Nature  of  rnincorporated  Stock  Exchanges  20 

Stock  Exchange  not  a  Partnership    .....  28 

Nor  is  the  Stock  Exchange  a  Corporation  or  Incorporated 

Joint-stock  Association      .         .         .  .31 

Rights  of  Members  in  Property  Held  by  Non-incorporated 

Stock  Exchanges       .......  32 

Liability  of  Mcinlx'rs  for  I)(l)ts,  etc.          ....  38 

Suits  by  and  against  tix-  Stock  Exchange.          ...  40 

Rules  and  H«'giilations  of  Slock  Exchanges          .          .          .  57 

General  Power  to  Make  Rules    .....  57 

Power  <»f  Suspension  and  Expulsion   ....  72 
Rule  fJiving  .Aleinbeis  of   Exchange  Lien  on   Proceeds 
of   defaulting    Meuibcrs  "  Scats,"  etc.,  in  Prefer- 
ence to  other  C"re<litorH,  not  Illegal                          .113 

ix 


X  Contents. 

PAfiF. 

Kulos  ami  Kuuiilalioiis  of  Stock  KxclKin<2;es — Cont'miiPil. 

The  Slock  Exchange  Caiuiot  Take  Cognizance  of  jNIat- 
teis  Arising  Outsi(h'  of,  and  I)isconn('cte<l  wiili, 
the  Purposes  of  its  Organization  .  .  .  .      rill 

Menil)ers  not  Bound  l)v  Rules  wiiicli  PriMut  Recourse 

to  Courts  of  Law  ......      132 

Liability  of  Seats  in  Exchange  to  Legal  Process         .  .     lii 

"         "       "     to  Taxation 103 

Gratuity  Fund — Life-insurance          .....     1G4 

CHAPTER  in. 

ANALYSIS  OF  TRANSACTION  BETWEEN  BROKER  AND 
CLIENT  UPON  PURCHASE  OR  SALE  OF  STOCKS  IN 
THE  UNITED  STATES. 

Stock- Brokers  and  Stock  Exchanges — License  .         .         .     17."5 

Legal  Relation  of  Stock-broker  to  his  Client       .         .         .     179 

Definitions  of  Tenns  Used         ......     200 

Purchase  on  "Long"  .\ccount — History  of  Transaction    .     20.') 
The  Order  to  Purchase,  Price,  and  Number  of  Shares 

to  l)e  Bought 206 

Duty  and  Liability  of  Broker  in  Purchasing  ;  Right  to 

Indemnity  .  .  .  .  .  .  .  .218 

Disposition  of  Stock  when  Purchased  ;   Safely  Keejjing 
same ;    Liability    to  Keep    Identical    Stock    Pur- 
chased, etc.         .......     241 

Dividends,  Profits,  Assessments,  Calls,  Interest  .     264 

Right  of  Client  to  Control  and  Take  Up  Stock    .  .     275 

Duty  of  Broker  to  Sell— "Stop  Order"     .  .  .         .297 

Special  Contract  with  Client — .Joint  Adventures  in  Stocks     306 


Couteiits. 


XI 


Sales  for  "  Short "  Account 

Nature  of  Short  Sale  ...... 

Duty  of  Broker  to  Sell  at  Price  Ordered 

Nature  of  Contract  Made  upon  '' Borrowing  "  Stock, 

and  from  whom  the  Stock  may  be  Borrowed 
Duty  of  Brokers  to  Close  Short  Contract  by  "  Buying 
in  "  Stock  ........ 

Compulsory  Sale  by  Broker        ...... 

For  Failure  to  Put  Up  3Iargins  to  Meet  the  Fluctua- 
tions of  the  Market       ...... 

Form  of  Notice ;  Upon  whom  Served  ;  Reasonable  Time 

Notice  of  Sale  for  Failure  to  Comply  with  Demand  for 

Margins        .... 

Place  of  Sale     .... 

Broker  cannot  Sell  or  Purchase  . 
Effect  of  Sale  or  Purchase  by  Broker 

When  Broker  can  Close  Transaction 

When  Broker  Can  Act  by  Substitute 

Commission  of  Broker 

Comnnmications  between  Broker  and  Client  not  Privileged 

Puts.   Calls,   Straddles  and  Pools   considered   apart   froni 
their  Wagering  Aspect       ...... 

The  Clearing  House  ....... 

CHAPTEU   IV. 
USAGE.S  OF  .STOCK-UKOKEKS 
General  Rules  relative  to  Usages 


PAOK 

323 
323 

327 

327 

329 
334 

334 
336 

347 
356 
365 

382 

385 

391 
394 
400 

404 

406 


Cases  in  which  Usages  of  Stock-brnkt-rs  H 

III  the  United  States  . 

In  Kiiglaml  .... 

Cft«ert  ill  wliicli  Usages  have  been  Rejected 
In  the  I'liited  Slates  . 
In  Kngl.'iiid  .... 


H 


iidiiig 


410 

43.3 
•183 
111 

1  IM 

tec 


Xll 


Contents. 


CHAFFER  V. 
STOCK-JOBBING. 

Dealings  in  Stocks  at  Conmion-hiw    . 
Stoclc-jublnng  Acts  .... 

Wagers 

At  Common-law 

Wagers  under  Existing  Laws 

Wagers  between  Principals 

Actions  by  Brokers  for  Money  Laid  Out,   etc 

Commissions  in  Stock  Transactions 
"Options,"     "Puts,"      "Calls,"     "Straddles 

"Spread-eagles"  .... 

Conspiracy  to  Affect  Stocks,   etc.;   "Pools,"   ' 

ners,"  "  Rigging  the  Market" 
General  Principles  Deducible  from  the  Cases 


,  aiK 


Cor 


475 
476 
515 
515 
519 
536 

551 

noi 

615 
645 


CHAPTER  \  I. 


STOCK  EXCHANGE  SECURITIES;  NEGOTIABILITY  AND 
NON-NEGOTIABILITY;  DEALIN(;  WITH  APPARENT 
OWNERS;  FRAUD;   ILLECiALITY. 

Stock  Exchange  Securities         .... 
Negotiable  Securities  .... 

Non-negotiable  Secui'ities  .... 

Negotiability    ....... 

Origin  and  Nature  of  Negotiability     . 
How  Negotiability  may  be  Established 
Requisite  Elements  of  Negotiability    . 
Results  of  Negotiability ;  Houa  Fide  Holders 

Non-Negotiability     ...... 

Doctrine  of  Non-Negotiability    . 
Negotiability  as  applied  to  Stock  Certificates 
Forged  Transfers       ..... 

Dealing  willi  Apparent  Owners  ;  Fraud  ;  Illegality 


648 
649 
656 

656 
656 
662 
575 

678 

697 
697 
700 
725 

743 


Conteuts. 


xm 


CHAPTER  VII. 


REMEDIES. 

Remedies  of  Stock-brokers  aud  Clients  against  Each  Other 
Relation  of  Brokers  to  Each  Other     . 
Relation  of  Clients  to  Each  Other 
Liability  of  Brokers  to  Undisclosed  Clients 

When  he  makes  the  Contract  in  his  Own  Name 
Where  he  Voluntarily  Incurs  a  Personal  Rosponsi 

bility  either  P^xpress  or  Implied  . 
Where  he  does  not  Disclose   the   Name  of   his 

Principal      ..... 
Where  he  Exceeds  his  Authority 
Agents  or  Factors  are  Personally  Liable  upon  all 

Contracts  fur  Foreign  Principals  . 
Where  the  Agent  has  no  Authority  . 
Agent  is  Liable  where   there   is  no  Responsible 

Principal      ..... 

Agent  is  Liable  when  Guilty  of  Fraud  or  Deceit 

Liability  of  Undisclosed  Clients  to  Stock-brokers 

Liability  of  Brokers  to  their  Own  Clients    . 

Lialjility  of  Clients  to  their  Own  Brokers     . 

General  Indemnity      .... 

Banker's  Lien      ..... 

Stock-broker's  Lien     .... 

Specific  Performance         ..... 

Preliminary  Observations  .... 

General  Rule     ...... 

When  Specific  Performance  Refused  in  EnghuK 
Cases   Involving   "Calls"   when  Relief  Refusec 
Cases  of  a  Miscellaneous  Character 
When  Specific  Pcrfornianci'  Decreed  in   Englaii* 

Specific  Perfonnance   in  the  United  States 

Preliminary  Observations  .... 
When  R«-li«-f  Refused  .... 

When  Decreed  as  to  Railway  Shares 


749 
749 
753 
759 
760 

760 

760 
761 

761 
761 

761 
761 
765 

667 

784 
784 
785 
804 

810 
810 

812 
H13 
SI  6 
819 
H22 

M2H 

828 
h;{0 
HIVJ 


XIV 


Contents. 


Maiulanius        ........ 

Tlie  Effect  of  Usury  iipou  Stock  Transactions    . 

Statute  of  Frauds      ....... 

Contracts  for  Sale  of  Stocks  not  within  English  Statute 
Contracts  for  Sale  of  Stock  Held  to  be  within  Statute 

of  Frauds  in  the  United  States 
When  Statute  must  be  Pleaded  .... 


rA(iF, 

848 

Hi'yH 

875 
875 

883 
899" 


CHAPTER   Vni. 

MEASURE    OF  DAMAGES. 

General   Rule   in  the  United    States  in  Actions  relating  to 
Personal  Property.  ...... 

In  Actions  by  Vendee  against  Vendor 

In  Actions  by  Vendor  against  Vendee 

In  Actions  for  Conversion  of  Personal   Property 

Refusal  to  Return  Borrowed  Stocks    . 

In  Actions  between  Clients  and  Stock-brokers  . 

By  Clients  against  Stock-brokers  for  Failure  to  Bu 

as  per  Instructions     ..... 
Client  .against  Broktr  for  Failure  to  Sell  Stocks 
Measure  of  Damages  for  Conversion  of  Securities  l)y 

Broker         ....... 

Exceptions  to  Rule  laid  down  in  Baker  vs.  Drake 

Where  Stocks  are  Held  for  Investmcnl 

Where    the    Broker    Realizes   a    Prolit   fiom    hi 
Wrongdoings         ..... 

Reasonable  Time         .  ..... 

Market  Value      ....... 

In  Actions  by  Stock-broker  against  his  Client    . 

CHAPTER  IX. 

STOCK-BROKERS    IX    EN(;LANr). 
Statutes  relating  to  Stock-brokers  in  F^nulaiid     . 


902 
902 
908 
910 
912 

91  (i 

91(5 
919 

921 
981 
931 

933 
934 
936 

938 


941 


Contents.  xv 

PAGE 

Decisions  under  Foregoing  Statutes  .....     953 

Commissions  and  remuneration  of  Brokers         .         .         .     960 

Origin   anil  History  of   the   London   Stock  Excliauge,  and 
Rules  and  Regulations  tliereof        .....     969 

CHAPTER  X. 

ANALYSIS  OF  TRANSACTION  BETWEEN  BROKER  AND 
CLIENT  UPON  PrRCHASE  OR  SALE  OF  STOCKS  ON 
LONDON  STOCK  EXCHANGE. 

Definitions 982 

Trading  '"for  Money"      .......     986 

Trading '•  for  the  Account" 987 

Relation  of  Broker  to  Client 994 

Ownership   and   Disposition  of   Securities   whtMi   |)ur- 

chased 1000 

Summarily  closing  Transaction  .....   1004 
Other  Incidents  of  the  Relation 1008 

Relation  between  Client  and  .Jobber  .....  1011 

General  Liability  of  Jobber  to  Vendor         .          .         .  1011 
Special  Contract  between  Jobber  and  Client — Guaran- 
teeing Registration       ......  1026 

Liability  of  Client  to  Jobber 1027 

Relation    of   C'li<'nt  t(;  L'ndisclosed    mid    Iiitiriiifdiati'    I'lii- 

chasers      .         .         .         .         .         .  .  .    Ki.il 

Relation   between   Scliiiiji  Client,  or  \'i  iidoi',  :iiid  ritiiiialf 

l^iirchascr,  or  Tninsfcrror,  and  Tr:iiist»'ri.'t'  .  .    1036 

CIIAI'lKli   \I. 

THE    I'ABIS    UorUSE. 

HiBtorv  of  the  Bourse       ...  ...   1045 


xvi  Contents. 

rAOK 

Agents  do  Change     ........    1018 

Tilt'  Coiilissii'is         ........    l().o4 

Nature  of  Transactions     .......    10;V,) 


APPKNDIX. 

Constitution  of  the  New  Yorli  Slock  Exchange,  with  sonic 

resolutions  :uh:)ptcd  l»y  the  ( Jovcniing  C'oniiiiiltec          .  IOC)") 

Index    to    New    York    Stock    Exchange    Constitutinn  and 

Resolutions         ........  10(17 

Rules  and  Regulations  of  the  London  Stock  Exchange         .  1  127 

Contents  of  Rules  of  the  London  Stock  Excliange       .  112!) 

Index  to  Rules,  etc.,  of  the  London  Stock  P^xchaiigc.  11  IK") 

Synoptic  Tables  of  the  three  Regulations  of  the  Stock  Ex- 
change Company  of  Paris  .         .         .  .         .         .1221 

Table  of  Contents  of  Synoptic  Tables         .          .          .  122o 

Table  of  Forms         ........  13315 

GENERAL   INDEX 135.5 


TABLE  OF  CASES. 

[The  references  are  to  pages.] 


A. 

Abbett  vs.  Frederick  190, 

Ackerman  vs.  Ackerman 
Acranian  vs.  Cooper 
Adair  vs.  Shaw 
Adams  vs.  Ball 

vs.  Blackwall  R.  Co. 

vs.  Capron 

vs.  Clews 

vs.  First  Nat.  Bank 

vs.  Otterback 

vs.  Peters  425, 

Adatns  Express  Co.  vs.  Scho- 

field 
.\dainson  vs.  Jarvis 
Addcrly  vs.  Dixon  812, 

.\ddis  vs.  Knijiht 
Mtrnx  Life  Ins.  Co.  vs.  Middlp- 

port 
Agar  vs.  Macklcw 
Agra,  etc  ,  Bank  v.s.  Leighton 
Ainsworth  vs.   Bowen 
.Mab.itiia       State       Bank      vs. 

Barnes 
.\lasi;;er  vs.  ("urric 
.\lberH  vs.  .Merchants'  Ex.     .V.}, 
(V.i,  Gl.  ?>0,  <jri,  97.  9H,  ior>, 


.Mbert  vs.  Baltimore 
AlbertHon  vh.  Ix)ughlin 
Alhon  vs.  Pyke 
.Mderdirc  vs.  Truss 
.Mfxanflor  vs.  SUite 
Alger  v.s.  JohnHon 


524, 


241 
50 
777 
798 
291 
824 
395 
782 
801 
433 
443 

50 
784 
815 
802 

225 
135 
086 
383 

7s7 
7H6 
00, 

no, 

112 
713 
570 
144 
884 
501 
900 


Allan  vs.  Graves 

vs.  Sundius 
Allen  vs.  Aguirre 

vs.  Brown 

vs.  Choteau 

vs.  Clark 

vs.  Dubois 

vs.  Dunham 

vs.  Dykers 

vs.  Eghmie 

vs.  Fuller 

vs.  Graves 

vs.  Hill 

vs.  McConihe 

vs.  Montgomery  R.  R. 

vs.  X.  Y.  Cotton  Ex. 

vs.  St.      Louis     National 
Bank 

vs.  South   Boston   R.    I{. 
Co. 

vs.  Stead 

vs.  Stevens  (1) 

vs.  Steveas  (2) 

vs.  Whit  stone 
.Mlien  vs.  Wotherspoon 
.Mtman  vs.  Ben/, 
Alton  C'o.  vs.  .Xortoii 
.\nil)urger  vs.  Marvin 
.\mcriran    Live  Stock   Co.    vs. 
Chicago  Live  Stock  ^]x. 

32.  (30.  03,  01,  no,  09. 
I  15.  162 
.\inerican  Press  .\nm\.  vs.  Br.mf- 
inghani  701 

(xvii ) 


1022,  1035 

785 

895 

658 

652 

42,  53 

260,  451 

508 

448,  450,  451 

896 

522 

764 

250 

206,  327 

476 

151 

463 

901 

775 

38 

770 

513 

35 

57 

70 

899 

vs. 

21 .  26. 


Table  of  Cases. 


Amoriran  Steel  it  Wire  Co 

.  \s. 

Wire  Drawers  Unions 

50 

American  Tel.  Co.  vs.  Day 

726 

Amherst  Aeademy  vs.  Cowls 

657 

Aniory  vs.  Meryweather 

4.S.5, 

647 

Amsden  vs.  Jacobs 

307, 

589 

Amy  vs.  Dubuque 

653 

Ancient  Order  of  P'orresters  vs. 

Court  Abraham  Lincoln 

49 

Anderson  vs.  Bank 

803 

vs.  Heard    4(59, 

75Q, 

1030 

vs.  liiddle 

829 

vs.  Kissam 

744, 

746 

vs.  Nicholas 

77() 

vs.  Sutherland 

459. 

470 

vs.  United  States 

6S 

Andre  vs.  Crawford 

415, 

466 

Andrews  vs.  Clark  216,  217 

243 

746 

vs.  Clerke 

192 

vs.  Mockford 

624 

Androsroffdn    H.    R.    Co. 

vs. 

Auburn  Bank 

265 

Anonymous,  (I) 

870 

.\nonymous,  (2) 

884 

Anthony  vs.  Unangst 

570 

Appleman  vs.  Fisher 

325 

513 

Appleyard,   E.\   parte 

907 

April  vs.  Baird 

53 

Arbouin  vs.  Anderson 

685 

Archer  vs.  Putnam 

864, 

873 

vs.  Williams 

915 

A  rent  vs.  Squires 

191, 

241 

Arents  vs.  Conmionwealth 

653 

Argus  Printing  Co.,  In  re 

250 

Armour  vs.  Bank 

803 

Armstrong  vs.  American 

Ex- 

chani^e 

Nat. 

Bank 

(i45 

vs.  Bank 

799 

vs.  Chemical 

Nat. 

Bank 

789 

795 

vs.  Helm 

794 

vs.  Toler 

483 

577 

vs.  Village 

398 

vs.  Warner 

794 

.\nnstrong,  In  re  790 

.\rnold  vs.  Smith  228 

Arnott  vs.  Pittston  Coal  Co.  634,  639 
Ash  vs.  Guic  29 

Ashby   vs.    Blackwell  729 

.\she  vs.  Johnson  812,  840 

.\shner  vs.  .\benheim  416 

Asliton  vs.  Atlantic  Bank  712 

vs.  Dakin  584 

.Associate  vs.  Seminary  58 

Aston 's  Ca.se  402.  475,  476.  482 
Asylum  vs.  Phenix  Bank  852,  853 
Athortord   vs.   Beard  517,  518 

.\tkins  vs.  Gamble  255 

Atkinson  vs.  Atkinson  706,  712,  716 
vs.  Brooks  691 

vs.  Scott  873 

.\ttorney  General  vs.  Bouwens  650 
Atty.  Gen.  vs.  Hollingsworth  870 
Atty.  Gen.,  In  re  627 

.Atwater  vs.  Manvillc  508 

Aubert  vs.  Maze  483,  647 

Audain,  Ex  parte  968.  969 

Au>iusta  Teutonia  Lodge,  The  49 
AuU  vs.  Colket  463,  703,  705,  706, 
719,776 
.Vulton  vs.  -Atkins  659 

Austen  vs.  Brigham  163,  164 

Austin  vs.  Gillespie  8.39 

vs.  Searing  41,  46,  59,  64, 
i03,  133,  135,  137 

vs.  Walker  873 

.\\ery  vs.  Ryan  839 

Ayer  vs.  Meade  220 

vs.  Seymour  250 

.\yres  vs.  French  776 

B. 

Babcock  vs.  Merchants'  Ex.  142 

vs.  Schuylkill  Ry.  Co.  837 

Baeck  vs.  Meinken  830 

Bagge's  Case  475 

Bahia  &  San  F.  Co.,  In  re   729,  730, 
732,  737 

Bail  vs.  Clarke  233 


Table  of  Cases. 


XIX 


409. 
843, 
295, 


229, 

278, 


Bailey  vs.  Bensley 

vs.  Champlain 
vs.  Drew 
vs.  Galbraith 
vs.  Strohecker 
Baily  vs.  Carnduff 
Baker  vs.  Bank 

vs.  Drake  190,  191,  192, 

232,  2.5.5,  306,  307, 

430,430,453,921, 

923,  924,  925,  92G, 

931,  933,  934, 

vs.  Marshall 

vs.  X.  Y.  Nat.  Bank  295, 
vs.  Xottinjrham  Bank 
vs.  Plaskitt 
vs.  Walker 
Baldwin  vs.  Commonwealth 

vs.  Williams  887, 

vs.  Zadij]; 
Balkis  vs.  Tomkin.son  732,  832, 
Ball  vs.  Davis 
Ballard  vs.  Bank 

vs.  Bennett 
vs.  Green 
Ballon  vs.  Willett 
Baltimore      Central     .\ational 

Bank  vs.  Conn.  In.sce.  Co. 
Baltimore  City  Pa.ss.  R.  Co.  vs. 

Sewall 
Baltimore  City  K.  R.  Co.  vs. 
Hamhleton  837, 

Baltimore  Ins.  Co.  vs.  Dalrym- 
ple  193,  a53,  364,  383, 

Baltimore  Ry.  Co.  vs.  Wheeler 
!).iltz<;n  vs.  .N'icolay  7(51, 

l{an<Toft  vs.  Wentworth 
liari;ror,  ete.,  Co.  vs.  RobiiLson 
Itan^s  vs.  Homick 
liank    vs.  Bank 
VH.  (.'arroll 
VH.  Duljuque  tt  I'.i'-.  H 

R.  Co. 
VH.  Edmans 
VM.  Evans 


420 
S45 
296 
440 
855 
302 
799 
231, 
336, 
922, 
927, 
935 
853 
803 
671 
476 
691 
846 
889 
597 
93S 
590 
863 
133 
505 
521 

798 

906 

845 

906 
787 
889 
181 
707 
5S0 
463 
.504 

:{S3 
.50! 
724 


Bank    \s.  Harrison  525, 

AS.  Hepworth 

vs.  Lanier  705,  727,  729, 

vs.  Leighton 

vs.  Levy 

vs.  Owens 

vs.  Packinu  Co. 

vs.  Proctor 

A's.  Reese 

vs.  Ritzinger 

vs.  Schreiner 

vs.  Taliaferro  284, 

vs.  ^\'a2;er 

vs.  Walker 

vs.  Wisconsin 
Bank  of  Allentown   vs.    Hoch 
173, 
Bank  of  Attica  vs.    Manufac- 
turer's, etc. 
Bank  of  Bengal  vs.  McLeod 
Bank  of  Commerce's  Appeal 
Bank  of  Montgomery  vs.  Reese 
Bank  of  Montreal  vs.  Wonte 
Bank  of  New  York  vs.  Vander- 

host 
Bank  of   Rome  vs.   Village  of 

Rome 
Bank  of  St.   Albans  vs.   Gilli- 

land 
Bank  of  Salina  vs.  Bal>cock 
Bank  of  Sandusky  vs.  Scoville 
Bank  of  U.  S.  vs.  Davis 
Bank  of  U.  S.  vs.  Macalester 
Bankers'  Cases 
Banks  vs.  Van  .\ntwcrp 
Banta  vs.  Chicago         175,  17(1, 
Baptist's  As.sociation  vs.  Hart's 

Executors 
Bare 


vs.  Culver 
vs.  Smitli 
K.iriiig  vs.  Corie 
li.irk  vs.  Bank 
M.irker,  MaU<»r  of 
liarkl.'iy's   (';is«», 
Bark.sdale  vs.  Mmwu 


113.  147. 
301. 


20S 


855 
471 
737 
6S6 
808 
873 
504 
792 
903 
792 
787 
463 
872 
802 
790 

240 

852 
374 
795 
928 
7;) 

(>92 

652 

()!)2 
692 
692 
339 
791 
177 
.S72 
iss 

37 
329 
1 52 
70S 
747 
247 
475 
45S 


XX 


Tabic  of  Tases. 


Barlow  vs.  Laml)crt 

(■)(■).") 

Bnrnard  v.s.   Backhaii.s       .')()S, 

.^)I3, 

5M, 

()46 

V.S.  KclloKfl 

421 

vs.  Yonnfi              866, 

870 

Barned  vs.  Hamilton 

915 

Biu-nes  v.s.  Brown       903,  926, 

938 

A-.s.  Smith                  549, 

582 

Barnett   vs.  Baxter 

501 

vs.  Warren 

439 

Barrett  vs.  Hyde                   494, 

496 

vs.  Mead 

494 

vs.  Union  Mutual  Ins. 

Co.                   217, 

717 

Barrow  vs.  Paxton 

307 

vs.  Rhinelander 

771 

Barry  vs.  Croskey       519,  623, 

629, 

630,  632, 

641 

vs.  Kennedy 

146 

Barstow  vs.  Sava<!;e 

703 

Bartlett  vs.  Bartlett     90,  109, 

141 

vs.  Collins 

509 

vs.  Medical  Soc. 

99 

vs.  Smith       228,  580, 

612 

Barton,  Ex  parte 

785 

Barton  vs.  R.  Co. 

726 

Bassett  vs.  Irons 

61 

Bate  vs.  McDowell  213,  214, 

215, 

218,  219,  264,  382, 

775 

Bateman  vs.  Strauss 

839 

Batesville  Institute  vs.  Kauff- 

man 

699 

Battles  AS.  Laudenslajjer 

681 

Baum  vs.  X.  Y.  Cotton  Ex.  104 

,  107 

Baxter  vs.  Allen 

394 

AS.  Board  of  Trade  of 

Chicago      60,  62 

108 

vs.  Mclntyre 

49 

Bayard  vs.  Edwards 

365 

vs.  Farmers'      &     Me- 

chanics'      Bank 

714, 

726 

727 

Bayley  vs.  Wilkins 

220 

Bayliffe  vs.  Butterworth     220, 

424, 

429 

licacii  vs.  Ki(l(l(M-  :?91 

Boadles    vs.  McElrath  531,  5S3 

\s.  Ownby  508,  58(» 

Bear  vs.  Bromley  29 

Beattie  vs.  Ebury  623 

Beaver  vs.  Arm.stronjT  652,  653 

Bebee  vs.  Bank  of  \.  Y.,  ()98 

Bcchuanaland  Exportation  Co. 

vs.  London  Trading  Bank     446, 

655,  663,  669 

Becket  vs.   Bilbrou;i;h  819 

Beckham  vs.  Drake  765 

Beckhusen  vs.  Hamblet      469,  757, 

1030 
Beckmann  vs.  Mepham  898,  900 
Beckwith  vs.  Burrough  844 

vs.  Union  Bank  792 

Bedford  Bank  vs.  Acoam  801 

Bedford  County  vs.  Nashville 

Ry.  843 

Beebe  vs.  Robert  765 

Beer  vs.  Landman  600 

Beers  vs.  Crowell  889 

Beeston  vs.  Beeston  519,  552 

Begliie   vs.   Phosphate  Sewage 

Co.  628 

Belchier,  Ex  parte  242 

Belden  vs.  Xicolay  903 

Bell  vs.  Calhoun  865 

Bellairs  vs.  Tucker  624 

Belmont     Branch     Bank     vs. 

Hoge  272,  685,  686 

Belton  vs.   Hatch     20,  22,  2.S,  29, 

31,  33,  45,   60,  61,   64,   73,   114, 

146,  158,  977 

Bennett  as.  Covington  228,  580,  770 

Benson  a's.  Morgan  501 

A-s.  Warehouse  Co.  598 

Bentinck  vs.  Joint  Stock  Bank 

194,  216,  278,  415,  446,  650,  670, 
671,  803 
Beiitlcy  vs.  Craven  366 

Bcntley,  In  re  968 

Bercich  vs.  Marye  707 

Berd  vs.  Lovelace  401 


Tablo  of  Cases. 


XXI 


Beril.'ll  vs.  Allen  323 

Ber.ii  N's.  San  Antonio  397 

Berlin  \  s.  Edd\'  255 

Berniiniiham  vs.  Sheridan  S19, 

1000.  1025,  1043 

Bernard  \s.  Maury  20t) 

^■s.  Young  SG6 

Bernhard  v.s.  Walls  S,S9 

Bernheini  vs.  Keppler     15,  20,  29, 

88,  114,  118,  129 

Bertram  vs.  Godfray  305,  300 

Bethlehem  First  Nat.  Bank  vs. 

Peisert  798,  799 

Bevan  vs.  .\dams  623 

vs.  Waters  806 

Beveridge  vs.  Hewitts  500 

Bibb  vs.  Allen     220,  228,  235,  395, 

399,  426,  427,  579,  785 

Bickett  vs.  Taylor  210,  310 

Biddle  vs.  Bayard      723,  729,  777 

Biebenger  vs.  Bank  795 

Biederman  vs.  Stone  220,  784,  821 

Bigelow  vs.  Benedict203,  513,  542, 

548,  569,  611,  612,  613,  646 

vs.  Legg  416,  419 

Bill  vs.  Fish  871 

Billings  vs.  Flight  482 

vs.  Policy  482 

Billing-slea  vs.  Smith  210,  .599 

Bingham  vs.  Scott  521 

BirdsiiU  vs.  Ru.s.sell       652,  ()8(),  6S6 

Bimiingham  vs.  Gallagher  40 

liirmiiitiham  Ins.  Co.  vs.  Com- 

Mi'iiiwealtli  854 

Birmingham     Nat.     liaiik     vs. 
Mayer  792 

vs. 

Roflen  843 

liirnbaum  vs.  May  211,327 

Bi-schoffsheim  vs.  lialtzer     225,  372 

Bishop  VH.   Balkis  Co.         415,732, 

992 
vs.  Cinrinn.ifi  ChiimlxT 

of  Cotiimcrce     91 ,  97 
Bi.nhop  of  Winchehler  vs.  Puinf  (iSl 


Bi.ssell  vs.  Farmers  Bank  829 

vs.  Michigan,  S.  it  X.  I. 

R.  Co.  739 

vs.  Ryan  432 

Black  vs.  Homersham  1044 

vs.  Ryder  865,  872,  873 

Black  and  ^^'hite  Smith's  Soc. 

vs.  Van  Dyke  1 1 1 

Blackburn  vs.  Mason  425,  4.58,  471, 
757,  1025 
Blair  Co.  vs.  Rose  912 

Blake  vs.  Nicholson  806 

vs.  Stump  411 

Blakemore  vs.  lleyman       220,  410, 

457 
Blakeslee  vs.  Ervin  394 

Bligh  vs.  Brent  881,  882 

Bloete  vs.  Simon  42 

Bloodworth  vs.  Jacobs  787 

Bloomer  vs.  Henderson  699 

Bloomington  vs.  Smith  651 

Rloxham,  Ex  parte  789 

Bhuiiontlial      vs.      Cincinnati 

Cliamlier  of  Commerce        95,  112 

Board  vs.  Donovan  24 

vs.  Exchange  24 

vs.  Ellis  27 

vs.  Kinsey  24,  515 

vs.   O'DeilCo.  24 

\s.  Weare  84 

Board  of  Trade  \s.  Central  Stock 

and   Grain 

Exc.        23,  502 

vs.Chri.stie        23,  27 

vs.  Donovan  Co.     24 

vs.  .Nelson         16,  62, 

64^  71,  90,  109 

vs.  Riordan       60,  62 

vs.  Thomson  Co.      24 

Board  of  Trade  of  Chicago  vs. 

Had<len-Knill  Co.  27 

vs. 
Thom-oii  Comrnissioii  Co.  21 

B(i:inliii;in  \s.  Ciiltrr  8S8 

vs.  (J.iillard  321 


X\ll 


Tabic  of  Cases. 


Hnanlinnn  vs.  Lake    Shore    ».V: 

Boyce  vs.  O'Dell 

524 

M.  S.  K.  1 

..Co. 

S30 

Boyd    \s.  Barrett 

218 

Hodt'iiliam  vs.  Hoskyns 

79S 

vs.  Coatcs 

531 

Ikxtti-her  vs.  Col.  Nat.  Ha 

Ilk 

798 

vs.  Conshohockcn  Mills 

2()4 

lioj^crt  vs.  Ef^erton 

787 

vs.  Hansom 

579 

Bolder o  vs.  Jackson 

865 

868 

vs.  Yerkes         210, 

215. 

217 

Bolinjibroke's  Case 

799 

Boy  Ian  vs.  Huguet 

255 

776 

Bollaiid  vs.  Bygrave 

786 

788 

Boyle  vs.  Hcnning 

218 

581 

liolton  vs.  Colder 

665 

Brackett  vs.  Griswold 

624 

vs.  Puller 

786 

Bradfield  vs.   Patterson 

235 

Tiondurant  vs.  Bank 

873 

Bradford  vs.  Fox 

692 

Bonciovanni   vs.  Soci^t<^ 

G^n- 

Bradley  vs.  .\ngel 

792 

6rale 

414 

vs.  Holds  worth 

882 

Bonsficld  vs.  Wilson 

966 

vs.  Western        L 

nion 

Boody  vs.  Pratt 

236 

Tel.    Co. 

25, 

503 

Boomer  vs.  Flagler 

927 

Bragg  vs.  Meyer 

377 

Booth  vs.  Fielding         301 

,393 

764 

Brainard  vs.  N.  Y.,  etc.,  R.  R. 

Booth  vs.  Hodgson 

483 

Co. 

652 

vs.  People 

502 

Branch  vs.  Commissioners 

678 

Bordenave  a"s.  Gregory 

4S2 

\s.  Palmer 

504 

Borham  vs.  Godfrey 

207 

Brancker  vs.  Roberts 

59 

Bosanquet  vs.  Diidman 

789 

Brand  vs.  Henderson 

500 

Bostock  vs.  Floyer 

242 

vs.  Lock 

501 

Boss  vs.  Hewitt 

688 

Brandao  vs.  Barnett   651, 

662, 

786, 

Boston    &   Albany   R.    R 

.    vs. 

788, 

797 

Pearson 

42 

Brantingham  vs.  Huff 

844 

vs. 

Brass  vs.  Worth     182,  192 

,  359 

364 

Richardson 

738 

907 

924 

Boston  Music  Hall  Association 

Braun  vs.  Chicago         175 

,  176 

188 

vs.  Cory 

476 

Bray  vs.  Farwell 

42 

Bosworth  vs.  Machado 

953 

Breed  vs.  Purvis 

787 

Boultbee  vs.  Growski 

447 

Brehm  vs.  Sperry 

836 

Bousfield  vs.  Wilson 

476 

Brell  vs.  Rice 

869 

Bowen  vs.  Bull 

147 

Brewster  vs.  Schrader 

694 

vs.  Morris 

52 

vs.  Sime 

713 

vs.  Newell 

421 

vs.  Van  Liew 

193, 

244, 

Bowers  vs.  Jones 

394 

777 

l^owes,  Re 

786 

Bridenljecker  vs.  Hoard 

42 

!,  46 

Bowlby  vs.  Bell  225,  234, 

880, 

1043 

Bridgeport  Bank  vs.  R.  R 

.Co. 

Bowler  vs.  Barberton  De\ 

elop- 

706, 

727, 

735 

nient  Syndicate 

821 

Bridgman  vs.  Gill 

798 

Bowman  vs.  Close 

296 

297 

Briggs  vs.  Boyce 

279 

Bowring  vs.  Shepherd 

269, 

992, 

-  vs.  Kennett 

216 

243 

1000 

265, 

927 

Boyce  vs.  Green 

882 

vs.  Partridge 

755, 

760 

Table  of  Cases. 


XXIU 


Brigliam  vs.  Mead  494 

Bri-ht  vs.  Judson  603 

Brii^litwell  V.S.  Mallory  476 

Brisbane  vs.  Adams  6:iS 

VS.  Del.,  Lack,  ct  W. 

R.  R.  Co.  727 

British  and  American  Tele- 
graph Co.  vs.  The  .\lbion 
Bank  630 

Britton  vs.  Ferrin  416 

Broad  vs.  Pitt  401 

Broadbent  vs.  Yarley  777 

Brockenbrough  vs.  Spindle         S70 
Brogden  vs.  Marriott  517 

Bromwick  vs.  Loyd  661 

Bronson  vs.  Silverman  694 

Brooklyn  City,  etc.,  R.  R.  Co. 

vs.  Bank  691 

Brookman  vs.  Rothschild  193,  205, 

366,  369,  372,  383,  976,  987,  1001 

Brooks  vs.  Hoey  4'2 

vs.  Mitchell  688 

vs.  Sullivan  694 

Brown  vs.  Alexander  501 

vs.  Barse  400 

vs.  Black  828,  1034 

vs.  Boorman  301,  432 

vs.  Britton  833 

vs.  Champlain  865 

vs.  Dale  56 

vs.  Da  vies  687 

vs.  Galliland  836 

vs.  Hail  612 

vs.  Howard    P'iro    Ins. 

Co.  726,  729,  732 

vs.  Institute  795 

vs.  Leavitt  692 

vs.  I^eckie  7S7 

V8.  Mutual    Trust    Co. 

17,  115 
V8.  Nevitt  .S73 

vs.  Phelps  491,  495 

vs.  S|X'yiT  612 

V8.  S|X)fford  079 

VH.  State  OS 4 


Brown   \s.  Turner       480, 

•1S3,  -IS  1, 

647 

vs.  United  States 

689 

vs.  Ward 

358 

Brownell  vs.  Hawkins 

295 

Brownint:;  \s.  Aylwm 

958 

Brownson  vs.  Chapnian 

693,  750, 

753,  891 
Brua's  Appeal  557,  559,  561,  612 
Bruce  vs.  Hunter  271 

Brunswick  Co.  vs.  Muggeridge    812 
Bryan  vs.  Baldwin     203,  338,  340, 
349,  382,  383 
vs.  Lamson  501 

vs.  Lewis  480,  612,  613 

Bryant  vs.  Western  Union  Tele- 
graph Co.  23,  25,  26, 
511,  531,  535 
Bryson  vs.  Rayner      353,  364,  383 


Bubb  vs.  Yelverton 
Buck  vs.  Amidon 

vs.  Buck 
Buckingham  vs.  Fitch 
Budd  vs.  Monroe 
Buffalo  County  Xat.  Bank  v 

Hanson 
Bull  vs.  Douglas 
Bullard  vs.  Kinney 

vs.  Smith 
Buller  vs.  Crijis 
Bullock  vs.  Richard.son 
Buhner,  Ex  parte 


652 
762 

476,  965 

595 

705,  712 

787 
865 
30,  42 
499 
061,662 
481 
484 

Bundy  vs.  Monticelio  795,  798,  799 
Biinn  vs.  Rikcr  518 

Bunting  vs.  Camden  R.  Co.         652 
Burl)a  vs.  Ricardo  444 

Burl)ridge  vs.  Gumbel  439 

Burgo  vs.  .\shley  556 

Burhorn  vs.   Lockwood     213,  770, 
773,  926.  935 
Burk  vs.  Mead  830.  897,  S98 

Burkholder  vs.  Bcctoin  716 

Burkitt   vs.   Taylor  210,   310,   337, 
338,  340,  318 
Burleigh  vs.  Ik-van  320 


XXIV 


TiilHr  ot   Cases. 


Burliiiuton  vs.  White  (11 

Buruham  vs.  Cieiitry  S73 

Burns  vs.  Campbell  898 

BurnsvlUe    Turnpike    Co.    vs. 

The  State  857 

Burr  vs.  Davis  511 

vs.  Sickles  433 

Burrall   vs.    Bushwiok    R.   Co. 

701,  842 
Burridge  vs.  Anthony  925,  935 

Burt  vs.  Grand  Lodfje  108,  112 

vs.  Dutcher  921 

Burton  vs.  Shotvvell  829,  842 

Burton's  Appeal  705,  714,  723 

Bush  vs.  Cole  207,  298 

vs.  Lathrop  698 

Butcher  vs.  Krauth  366 

Butcher's  Beneficial  Assn.,  The     60 

Butler  vs.  Co.  865 

vs.  Finck  243,  319 

vs.  Nohe  501 

vs.  Sprag:ue  295 

Butterfield  vs.  Beardsley  30 

Buttlar  vs.  McLean  775 

Buxton  vs.  Lister  812,  815 

Byam  vs.  Bickford  37 

Byers  vs.  Beattie  554 


Cady   vs.   South   Omaha  Nat. 

Bank  803 

Cahill  vs.  Bipser  37 
vs.  Carbolic  Smoke  Ball 

Co.  516 

vs.  Hirschman  391 

Caldicott  vs.  Griffiths  29,  33 

Caldwell  vs.  People  502 

vs.  Warehouse    Co. 

872,  874 

Calhoun  vs.  Richardson  725 

Callanan  vs.  Brown  904 

Calton  vs.  Bragg  271 

Calumet  Co.  vs.  Williams  501 
Calvin  vs.  Williams              878,  880 

Calvit  vs.  McFadden  902 


("aiiuicM   \s. 
Cameron  vs. 


Guarantors  48 

Durkheim       201,  202, 

337,   338,   340,   343, 

348,   434,   543,   916, 

918,  927,  937 


vs.  Tompkins 

896 

Cammann  vs.  Huntington 

377 

Campbell  vs.  Brass 

212 

vs.  Morgan 

726 

vs.  National  Bank 

528, 

647 

vs.      New      Orleans 

Bank 

510 

vs.  N.  Y.  Cotton  Ex. 

160 

vs.  Patterson 

865 

vs.  Richardson 

518 

vs.  Wright  302, 

305, 

323, 

326, 

335 

Cannan  vs.  Bryce  483, 484, 647 

649 

Cannon  vs.  Folsom 

906 

vs.  Toronto   Corn 

Ex. 

96 

107, 

112 

Canton  vs.  Smith 

907 

Cantwell  vs.  Boykin 

505 

Caponigri  vs.  Altiere 

860 

Capper  vs.  Harris 

815 

Capper  s  Case 

1012 

Capron  vs.  Thompson 

192, 

232, 

255 

263, 

391 

Cardwell  vs.  Hicks 

694 

695 

Garland  vs.  Tel.  Co. 

511 

Carlen  vs.  Drury 

104 

Carley  vs.  Todd 

860 

Carmi chad's  Case 

968 

Carney  vs.  Plimmer 

555 

Carlton  vs.  Jackson 

730 

Carpenter  vs.  Ins.  Co. 

836 

vs.  Longan 

699 

vs.  Momsen 

805 

Carr   vs.  Hinckliff 

755, 

756 

vs.  Thompson 

781 

Carrall     vs.    Exchange 

Bank 

790 

,795 

Carroll  vs.  Holmes 

500 

Carstairs  vs.  Stein 

872 

Table  of  Cases. 


XXV 


Carteret  Club,  The,  vs.  Flor- 
ence 103,  104,  109 
Carter  vs.  United  Ins.  Co.  058 
Case  vs.  McClellan  1011 
Casey  as.  Bentley  144,  488,  820 
Cashman  vs.  Root  193,  507 
Cass  County  vs.  Green  680 
Ca.ss  vs.  Higenbotam  259 
Cassard  vs.  Hinman  490,  492,  515, 
516,  539,  612 
Ciistellan  vs.  Hobson  1033 
Castello  vs.  City  Bank  348,  358 
Caswell  vs.  Putnam  216,  244,  253, 
428, 434,  777 
Cates  vs.  Knight  144 
Catling  AS.  King  899 
Catney  vs.  Blair  865 
Caton  vs.  Shaw  873 
Cazeaux  vs.  Mali  623 
Cecil  Bank  vs.  Farmers  Bank  801 
Cecil,  Mat.  of  248 
Cecil  vs.  Simmons  108,  128 
Central    &    Banking    Co.    vs. 

Farmers'  Loan  &  Trust  Co.     683 
Central  Bank  vs.  White  745 

Central  Grain  and  Stock  Ex- 
change of  Chicago  vs.  Ben- 
dinger  501,  744 

Central  Xat.  Bank  of  Baltimore 

vs.  Coim.  Mutual  Life  Ins.  Co.  295 
Central  Stock  and  Grain  Ex. 

vs.  Board  of  Trade  23,  502 

Chaffee  vs.  R.  R.  Co.  653 

Chaffee  vs.  Sprague  838 

Chaler  vs.  San  FrancLsco  S.  R. 

Co.  823 

Chamberlin  vs.  Greenleaf  255,  290, 

932 
Chanil>erlain  vs.  Jones  896 

Champion  vs.  Gordon  421 

Chumplain  vs.  Smith  585 

Chan<ller,   In  re  549,  609,  618 

Cliaprnjiu  vh.  Shepherd       220,  229, 

2(>6 
ChappcU  VH.  Cudy  800,  807 


Chase  vs.  Boston  194,  195 

vs.  Co.  S65 

vs.  Petroleum   Bank         792 

Chat  vs.  Edgar  661 

Chatterton  vs.  Fisk  513 

Cheale  vs.  Kcnward  825,  1044 

Chedworth,  Lord,  vs.  Edwards    768 

Chew  vs.  Bank  of  Baltimore         727 

vs.  Louchheim  193,  777 

Chicago  vs.  Tilton  65,  1 12 

Chicago  Artesian-^^'ell  Co.  vs. 

Corey  383 

Chicago  Bank  vs.  Foreman  787 
Chicago  Edison  Co.  vs.  Fay  726 
Chicago  Open  Board  of  Trade 

A's.  French  20 

Chichester  as.  Hill  ct  Son  671 

Chicopee  Bank  vs.  Chapin  695 

Child  vs.  Hugg  193,  353,  355, 

362,  364 

vs.  Morley  222,  225, 480,  986, 

988 

vs.  Thorley  789 

Chillas  vs.  Snyder  500 

Ciiipman  \s.  Bank  792 

Ciiippendale  \s.  Thurston  867 

Choteau  Spring  Co.  vs.  Harris     47() 

Chouteau  vs.  .Mien  354,  381 

Christie  St.  Co.  vs.  Board  of 

Trade  23,  24,  502 

Chrysler  vs.  Renois  692 

Church  vs.  Citizens  R.  R.  Co.      700 
Cincinnati,  etc.,  R.  Co.  vs.  Citi- 
zens Bank  706 
Citizens  Bank   vs.  .Mexander       79S 
vs.  Boweu  7S7 
vs.  Kendrick         791 
City  Bank  vs.  Balx-ock  349 
vs.  Rome,     Water- 
town,  etc.,  R. 
Co.  70S 
City  Bank,  Ex  parte             605,  (■)55 
City  Loan  Co.  vs.  Cheney            865 
City  of  Balfimore  vs.  Jolmson   164 
Little  Rock  vs.  Barton   177 


XXVI 


Talkie  of  Cases. 


City,  Tlio,  vs.  Lainson  (>.'):?,  C..")! 

flark    vs.  liailcy  177 

\.s.  Homain  Wt'.\,  'M\ 

vs.  Hrown  .WS 

vs.  Dos  Moinos  SOo 

vs.  Flint  829,  836 

vs.  Gilbert  177 

vs.  Giraud  480,  870 

vs.  Iowa  City  653 

vs.  Moody  308 

vs.  Northampton  Rank,  786, 

792,  801 

vs.  Pinckney  199,  779 

vs.  Pinney  903 

vs.  Powell     6,  188,  379,  903, 

954 

vs.  Van  Northwick  301 

Clarke  vs.  Bank  799 

vs.  Callow  899 

vs.  Dickson  623 

vs.  Ennis  776 

vs.  Foss  409,  612 

vs.  Meijrs  192,  255,  276,  299, 

301, 345, 3.55, 364, 771,  776 

Clarkson    vs.    Toronto    Stock 

Ex.  115,  120,  126 

Clay  vs.  Allen  597 

Clealand  vs.  Walker  765 

Clegg  \s.  Townsend  236 

Cleland,  In  re  782 

Clemens  vs.  Hecksher  715 

Clemmer  ^•s.  Drovers  Xat.  Bank  798 
Gierke  vs.  Martin         660,  664,  666 
Cleveland,  Duke  of,  Settled  Es- 
tates, Re  300 
Cleveland  vs.  Hcidenheimer        551 
vs.  Loder     865,  867,  873 
Cleveland   it  IMahonin;:  R.   R. 
Co.  vs.  Robbins  727 
vs.  Tapott  726 
Cleveland    Telegraph    Co.    ^•s. 

Stone  21 

Clews  vs.  Jamie.son       15,  137,  204, 

212,  220,  390,  408,  426,  465. 

.501,  772 


Clic. mot's   Claim  937 

ClilTortl  vs.  Turriil  824 

Clinton  National  Bank  vs.  Na- 
tional Park  Hank  747 
Clipi)er  Mining  Co.  vs.  Eli  Min- 
ing Co.                                         844 
Cloyes  vs.  Tha>er  402 
Clute  vs.  Loveiand           15,  19,  35, 
36,  145,  149 
vs.  Robinson  698 
Coal  Co.  vs.  Fry                         30,  42 
Coates  vs.  Pacey                  473,  488 
Coates  vs.  Preston  802 
Cobb  vs.  Prell  580 
Cochran  vs.  Adams       48,  118,  429 
vs.  Irlam  392 
Cockrell  vs.  Mclntyre                  898 
vs.  Thompson        550,  595 
Cockrill  vs.  Joyce  786 
Codd  A-s.  Rathbone  873 
Coddington  vs.  Bay              692,  694 
Coffm  vs.  Coke  398 
Coffman  vs.  Young  500 
Coit  vs.  Goodhart                 391,  770 
Colborne,  Ex  parte  655 
Colderwood  vs.  McCrea  500 
Cole   vs.  Milmine                  501,  612 
vs.  Ryan                                470 
vs.  Skrainka                         411 
Coleman  vs.  Commin                   863 
Coles  vs.  Bank  of  England         726 
vs.  Bristowe     216,   424,   494, 
764,  828,  990,  992,  1019 
Colket  vs.   Ellis  347,  3.53,  364,  420, 
423,  428,  431,  436,  453,  770 
Collen  vs.  Wright  733 
Collings  A's.  Nevin  548 
Collins   vs    Buckeye  Ins.  Co.       751 
vs.  Gilbert  686 
vs.  Sccreh                         873 
Colonial  Banlc  vs.  Cady      279,  441, 
446,  670,  672, 
705 
vs.  "UHiinney       1002 
Colson  vs.  Arnott                  651,  686 


Table  of  Oases. 


Xxvn 


Colt  vs.  Clapp  494 

vs.  Netterville     7S2,  811,  SIR. 

S22,   S77 

vs.  Oweiis  02.5,  920,  934 

Columbine  vs.  Chichester  S19 

Colvin  v.s.  Willianis  884,  8S9 

Colwes  AS.  Miller  83(3 

Commercial  Bank  vs.  French       75.5 

vs.  Henninger     787, 

794 

vs.  Hughes  791 

vs.  Jones  799 

vs.  Kortright        70.5 

vs.  Norton  392 

vs.  Rowland         790 

vs.  Smith  898 

vs.  Spaids  500 

Commercial  Telegram  Co.  vs. 

Smith  14,  20,  24,  31,  32,  45,  59, 60 
Commissioners,  etc.,  vs.  Clark  683 
Commissioners  of  Knox  Co.  vs. 

.\spin\vall  652 

Commonwealth  vs.  Barrett  460, 569 

vs.  Carlisle         638 

vs.  Cooper         366, 

375,  4.39,  465, 

783 

vs.  Dalzell  250 

V8.  German  So.  109 

vs.  Lucas  177 

vs.  Penn.    Be- 

nev.  Soc.     99 
vs.  Pike      Be- 
nev.  Soc. 

90,  112 
vs.  Quay  746 

vs.  St.        Pat- 
rick's 
Ben,  Soc. 
60,  111,  1.30 
vs.    Shurman'H 

Adiii.  .52 

vs.  Smith  7K3 

vs.  Tlie       CJor- 

nian  Soc.   109 


Compton  vs.  Chelsea  (>2  I 

Conant  vs.  National  Ice  Co.         837 

Conger  vs.  Judson  310 

Conkey  vs.  Bond  360 

Conneil  vs.  Averill  416 

Connelly  vs.  Assn.  64 

Conner  vs.  Bramble  897 

vs.  Robertson  439,  590 

Connor  vs.  Black       366,  509,  525, 

596,   646 

vs.  Heman  .590 

Consterdine  vs.  Consterdine         242 

Content  vs.  Met.  R.  R.  Co.   850,  856 

Continental     Nat.     Bank     vs. 

Townisend  688 

vs. 

Weems,  789,  795 

Contract  Corporation  403 

Conwell  vs.  Harris  258 

Conyngham's  Appeal  348 

Cooic  vs.  Bank  873 

vs.  Davis  543 

vs.  Fuller  798 

Cook,  Ex  parte,  In  re  Strachan 

181,  294,  1003 
Cooke  vs.  Eshelby  75(),  1025 

vs.  United  States      649,  677 
Cooke,  In  re.  Ex  parte  Saffrey 

13.8,  978 

Cooper  vs.  111.,  etc.,  R.  R.  Co.     71  I 

vs.  Neil  553 

vs.  Sandford  410 

Coote  vs.  Bank  801 

Cope  vs.  Dodd  433 

vs.  Rowlands  001 

Copley  vs.  Doran  Co.  510,  .5SS 

Copper  vs.  Mayor  6.53 

Coquard  vs.  Bank  of  Kaasa.s    416, 

427,  466 

vs.  Wciiistein  200 

Corbett  vs.  Tnderwood       193,  335. 

3.37,  .347,  420,  430,  4.53,  012 

Corcaliis     vs.      Grand      Canal 

Co.  810 

Co  rev  vs.  Griflin  522 


xxvin 


Table  of  Cases. 


Corn  Exchange  Bank  vs.  Fjuin- 

ers'  Xat.  Hank 
Cornell  vs.  District  i)f  Columbia 

vs.  I  lichens 
Corninc;  vs.  CJreen 
Cortelyou  \s.  Lansing;  307, 

Cory  vs.  Leonard 
Cothran  vs.  liank 

vs.  Ellis  300, 

vs.  State 

vs.  Telejrraph  Co.  504, 
Cottam  vs.  Eastern  Comities  R. 
Co.  724,  72G, 

Cottinghani  \s.  Shrew.sbury 
Coiinselnian  vs.  Reichart 
County  of  Warren  vs.  Marcy 
Coxisland  vs.  Davis 
Covell  vs.  Loud  195,  337, 

356,  418, 
Cover  vs.  Smith 
Cowell  vs.  Simpson 
Cowles  vs.  Kiehel 

vs.  Whitman 
Cox  vs.  O 'Riley 

vs.  Spri<r.<i; 
Crabl)  vs.  Miller  210,209 

Craft  vs.  McConouii'hy 
Crafton  a-s.  Carmichael 
Crandell  vs.  White 
Crawford  vs.  Pile  &  Brown 


vs.  Spencer  525, 

Crawshay  vs.  Homfray 
Cripps  vs.  Davis 
Crisp  vs.  Bunbury  143, 

Croak  vs.  Hiiih  Court 
Crocker   vs.  Crocker 

vs.  Old  South  Soc. 
Croft  vs.  Bunster 
Cromwell  vs.  County  of  Sac 

682,  688, 
Crook  vs.  Scott 
Crooks  vs.  Moore 
Cross  vs.  Eureka    Lake    Canal 
Co.  264, 

vs.  Sackett 


790 
688 
699 
42 
347 
794 
911 
501 
511 
530 

730 
730 
505 
682 
777 
343, 
438 
599 
803 
700 
829 
665 
6.58 
756 
038 
898 
520 
897 
595 
806 
6S7 
144 
64 
717 
112 
699 
681, 
696 
897 
910 

270 
623 


Crosby  \s.  Watts 
Crossley  vs.  Maj^iiac 

Croucli 


315 

459,  470, 

761,  1025 

.  Credit  Foncier  (555,  663, 

009,  670 

Crowley's  Claim        784,  1006,  1010 

Crull  vs.  Dodson  366,  372,  878,  886 

Crump  vs.  Thurber  832 

Cruse  vs.  Paine  424,  990,  1026 

Cud  or  Cuddee  vs.  Rutter  812,  813, 

814,  816,  822,  831,927 

Cumminps  vs.  Mead  691 

vs.  Webster  717 

(Xunmiskey  vs.  Williams  595 

Cunningham  vs.  Bank  530,  598,  647 

vs.  Fairchild  600 

vs.  Soules  762 

vs.  Stevenson        276, 

588,  776 

Currie  vs.  Booth  446,  1025 

vs.  Misa  690,  691 

vs.  Smith  451 

vs.  W'hite  612,  902,  905,  909 

Currier  vs.  Studley  16,  156 

Curtis  vs.  Gibney  465 

vs.  Leavitt  272,  865 

vs.  Wright  429,   .501 

Curtis,  Matter  of  103,  101 

Cushman  vs.  Thayer  Mfg.  Co.    .S43, 

844 

Cutting  vs.  Damerel  268 

\s.  Marlor  242 

Cvrus  vs.  I'ortman  590 


Dails  vs.  Lloyd 
Dammert  as.  Osborne 
Dance  vs.  Girdler 
Daney  vs.  Phelan 
Danforth  vs.  Evans 


771 

38 

52 

598 

647 


vs.  Philadelphia,  etc.  833 
Daniels,  Ex  parte  477 

Daniels,  In  re  386 

Danville  vs.  Sutherlin  865 

Dauler  vs.  Hartley  570 


Table  of  Cases. 


XXIX 


Davenport  vs.  Powell  9()9 

David  vs.  Illius  871 

Davidson  vs.  Tulloch  624 

Davies  vs.  Austen  698 

Davies,  Matter  of  627 

Davis,  etc.,  vs.  Howard      426,  427, 

447,  1007 

Davis  vs.  Bank  of  England       719, 

729,  803 

vs.  Bechstein  697 

vs.  Bowsher  786,  788 

vs.  Davis  547 

vs.  Gwynne  299,  304 

vs.  Haycock  757,  828, 

1000,  1041 

vs.  Hoy  863 

vs.  Nat.  Eagle  Bank         714 

Davison  vs.  Holden  50 

Dawkins  vs.  .\ntrobus  64 

vs.  Penrhyn  899 

Dawson  vs.  Bank  795 

vs.  Kittle  432 

vs.  Ileal  Estate  Bank  786 

vs.  Wilson  802 

r)a\>-  vs.  Bansis  521 

Day    vs.  Holmes        208,   366,   375, 

384,  463,  779 

vs.  Jameson         213,219,29s, 

366 

vs.  Perkins  912 

vs.  Stuart  485,  647 

Dean  vs.  Woodward  400 

Dpiirhorn  vs.  Tnion  Nat.  H.uik   241 

Decatur  vs.  Goodrich  7S1 

Deck  vs.  Fcid  9(IS 

De  Cordova  \>.  iViriiuiii      191,  230, 

435 
Dcicrliii^  \s.  Slori|)  551 

De  la  ('liaunM'tt<!  vs.   Bank  of 

En^'Iand  690 

Dclacy  vs.  IJivf-r  .Nav.  ('».   110,  111 
Di-lafifld  V-.  Slat*-  <.f   Illinois    207, 

651 
D.-iaiio  vs.  Wilrl  19 

Delennif  vs.  Hai^lit  tV:  I''ree«cCo.  213 


Delexan  vs.  Simonson  775 

Dc  Mattos  vs.  Benjamin  556 

Demery  vs.  Burtenshaw's  Est.  387 

De  Mott  vs.  Starkey  687 

Dempsej-  vs.  Harm  570 

Dennis  \'s.  Kennedy  134 

Dennison,  In  re  415,  466 

Denny  vs.  Lyon  463,  704,  723, 

728, 730 

Dent  vs.  Holbrook  910,  930 

vs.  Nickalls    1012,  1013,  1022 

Denton  vs.  Jackson  233,  342, 

426,  810 

vs.  Rodie  271 

DeRibeyre  vs.  Barclay         243,  244 

Derry  vs.  Peek  624 

Deshler  vs.  Beers  220,  395 

Devaynes    vs.    Noble    (Baring's 

Case)  243 

De  Waal  ^^s.  Adler  756 

Dcwees  vs.  Miller  51 S 

De  Witt  vs.  Chandler  12,   Hi 

Dickenson  vs.  Chamber  of 

Commerce  S9 

vs.  Tihvall  443 

Dickinson   vs.  Dudley  705,  722 

vs.  Gray  423 

vs.  Poutrhkeepsie       433 

Dickson  vs.  \'alentine  861 

Dickson's  E.xecutor  vs.  Thomas 

407,  .5()3,  564 
Diepciil)rock    \s.    I'roduci"    10\- 

chaiige  i:!,  171 

Dill.ard  vs.   I'.niinci-  .")1{) 

\s.  I'atou  (II,  457 

Diilaway  vs.  Aldcii  .592 

Dillayc  vs.  Commercial  Hank       707 
Dillcr  vs.  Brubakcr  318 

Dillon  vs.  McCrc.i  501 

Dinkier  vs.  B.icr  8S9 

Diiismore  vs.  Diine.ni  t')l9,  t>72 

Doak  \'s.  Siiap|)  905 

I)o:uie  vs.  Dunham  409 

Dobson  vs.  Kuhula  4  14 

Dock  vs.  Snapp  873 


XXX 


Table  of  Cases. 


Dodge  vs.  Tiawson  201 

Doe  vs.  Barnard  864,  SO.') 

Doloret  vs.  Rothschild  812,  823, 

82.5 

Donald  vs.  Gardner  346,  391 

Doniu'li    vs.     Colunihiiin  Ins. 

Co.  66.') 

vs.  Wyckoff  264 

Donohoe  vs.  Gamble  349 

Donovan  vs.  Daiber  .')1 1 

Doolubdass  vs.  llamloll  .517 

Dorison  vs.  Westbrook  816,  822 

Dorriens  vs.  Hutchinson  482 

Douglas  vs.  Bank  798 

vs.  Carpenter  192,  244, 
255,  258,  428,  434 

vs.  Smith  504 

Douglass  vs.  Kraft  929 

vs.  Leland  301 

Douthitt  vs.  Stimson  37 

Dow  vs.  Chamberlain  907 

Dowington  vs.  Meeker  865 

Downes  vs.  Bennett  142 

vs.  Black  913 

Downing  vs.  Marshall  37 

Dows  vs.  Glaspel  528 

Doxey  vs.  Spaids  500 

Drake  as.  Thompson    &  Deer 

Co.  219 

vs.  Weinman  219,  768 

Draper  vs.  Stone  829 

Drew  vs.  Power  770,  859 

Driscoll  vs.  West  Bradley,  etc., 

Co.  717 

Driver  vs.  Bond  882 

Drouilhet  vs.  Pinckard  '      600 

Dmce  vs.  Levy  1007 

Dubois  vs.  Thompson  779 

Duchemin  vs.  Kendall  312,  499 

Duclos  vs.  Cunningham  397 

Duden  vs.  Waitzfelder  383 

Duff  vs.  Hutchinson  219,  768 

Duffy  vs.  O'Donovan  899 

Dullvs.  Culver  835 

Dullnig  vs.  Weekes  353 


Dunli.-ir  vs.  Wilson  9,58 

Duncan  vs.  Hesson  1009 

vs.  Brennan  786,    789, 

794,  795 

vs.  Hill     48,  228,  235,  467, 

468,  1009 

vs.  Jauduii  712,  715 

vs.  Jones  42 

vs.  Luntley  729 

vs.  North     &     Soutli 

Wales  Bank  793 

Duncomb  vs.  N.  Y.  &  X.  H.  U. 

Co.  383 

Duncuft  vs.  Albrecht  811,  812,  824, 
826,  832,  879,  881 
Dung  vs.  Parker  761 

Dungan  vs.  Dohnert  835 

Dunham      vs.      Trustees      of 

Rachael  59 

Dunn  vs.  Bell  508,  587 

Dunne  vs.  English         366,  376,  382 
Dupignac  vs.  Bernstrom  897 

Durant  vs.  Burt  425,  428,  439, 

494,  577,  581 
vs.  Einstein  772 

Durfcc  vs.  Harper  853 

Durluun  vs.  Monumental  Min- 
ing Co.  8.55 
Dustan  vs.  McAndrew  909 
Dutch  vs.  Warren  903 
Dutchess,    etc.,    Ins.    Co.    vs. 

Hachfield  651, 684 

Dwight  vs.  Badgley  588,  589 

Dyer  as.  Rich  903,  906 

Dyctt  A's.  Seymour  775 

Dykers  vs.  Allen  2.59,  328,  358,  362, 

665 

vs.  Townsend  491,  646 

Dyster,  Ex  parte  6,  379,  944,  959, 

963 

E. 

Eagle  vs.  Bucher  57 

Eagleson  vs.   Shotwell  865 

Earl  vs.  Howell  587 


Table  of  Cases. 


XXXI 


Earle  vs.  Scott  203 

East  Birmingham  Land  Co.  vs. 

Dennis  457,  6S4,  703 

East  Haddam  Baptist  Church 
vs.  East  Haddam  Baptist 
Soc.  37,  40 

East  River  Bank  vs.  Judah         46 
Easterly  vs.  Cole  271,  396 

Eastern  R.    Co.   vs.    Benedict 

852,  906 

Eastman   vs.  Reid  838 

vs.  Wright  657 

Easton  vs.  Bank  705 

Eaton  vs.  Bell  271 

vs.  New    England    Tel. 

Co.  727 

Ebbinghousen  vs.  Worth  Club 

40,  41,  42,  46 

Ex^kert  vs.  Belden  779 

Eckstein  vs.  Downing  837 

Edelstein  vs.  Schulcr  411,  446, 

650,  656,  665,  669 

Edgell  vs.  McLoughlin  .524 

Edic  vs.  Ea-st  India  Co.  662 

Edwards   vs.  Goulding  755 

vs.  HoeffingliolY  580 

vs.  Jones  696 

vs.  Stevenson       'M),  596 

vs.  Warren  49 

Exlwards     Brokerage     Co.    \s. 

Stevenson  .596 

Egcrton  vs.  Furzeinan  517 

Eggl&ston  vs.  Rumble  591 

vs.  WooLsey  SlO 

Ehlennann  vs.  Bank  7S6 

Elder  vs.  Talrott  .")3() 

Eldridge  \s.  Mff.  liank        :i\7,  927 
Eliot  vs.  Merrhant-s'  Ex.      147,  1.V2, 

154 
Elizat>cth  City  vs.  Force  ()51 

ICIIerbc  vs.  Faust  61 

Elliii   vs.  l'.iise.v  liridgi;  Co.  .s.50 

VH.  Pond  22.S,  233,  .310.  420. 
167,  771,  7S4.  7K5,  992 
Elli«'H  Appeal  705,710 


Ellsworth  vs.  Cole  479 

Elwell  vs.  Chamberlain  392 

Embrey  vs.  Jemison  579 

Emery  vs.  Pease  770 

Emmerson's  Case         229,  266,  476, 

820 
Empire  City  Bank,  In  re  266 

Emrich,  In  re  146 

Endownnent  Rank  vs.  Powell      50 
Engelhardt  vs.  Heck  835 

England  vs.  Moore  865 

English  vs.  Brenan  40 

Ennis  vs.  Ross  592,  773 

Ensign  vs.  Kellogg  658 

Erben  vs.  Lorillard  395 

Erisman  vs.  Delaware  County 

Nat.  Bank  799 

Erskine  vs.  Sachs  380,  774 

Ertz  vs.  Produce  Ex.  68,  618 

Esmond  vs.  Apgar  781 

Esser  vs.  Linderman  193,  197, 

3.50,  386 
European  Bank,  In  re  797 

Evans  vs.  Adams  149 

vs.  Chamber    of    Com- 
merce 141 
vs.  Hooper  52 
vs.  Jones                             517 
vs.  Phila.  Club          106,  109 
vs.  Wain                    201,  4.57, 
4.59,  467 
vs.  Wister                     47,   48, 
60,    116,  149 
vs.  Woo.l  820,  S21 ,  828,  999, 
1020,  1039,  1010,  1043, 
1014 
Everriiighaiii  \s.  Lord                    4.39 
vs.  Mcigiian            .508 
E\LTt.s(»n  vs.  Nat.  Hank     (■>52,  6.53, 
r.51,    6S.S 
10x<liaii;:c  vs.  (Jregory  27 
Exchange  Bank  vs.  Ciatskill       ()24 
vs.  Swopson     Kf),! 
ICwbank  vs.  .Nutting                     910 
Eyrich  vh.  Capitul  State  Hank  802 


xxxu 


Table  of  Cases. 


F. 

Factors'    &    T.    Ins.    Co.    vs. 

Marine  Dry  Dock  Co.  727 

Faikncy  vs.  Ueynoiis  1S3,  647 

Fairchild  vs.  Scrjieiit  698 

Falklaiul  vs.  St.  Xicliolas  Nat. 

Hank  786 

Fallon  vs.  R.  R.  Co.     829,  8.32,  8.'^3 
Fareira  vs.  Gabell         553,  560,  563, 

568 

Farmer  ^■s.  Board  of  Trade     60,  64, 

90,  135 

vs.  Kvissell  577,  966 

Fanners'  Bank  vs.  Diebold  Safe 

it  Lock  Co.  712 
vs.  Farwell  787 

vs.  McFarran        794 
vs. Tensor  531 

Farmer's  Co.  vs.  Floyd  916 

Farmers',  etc.,  Bank  vs.  Drov- 
ers' Bank  740 
Farmers'  Loan  it  Trust  Co.  vs. 

Carroll  871 

Farmers'  Nat.  Bank  as.  Logan  708 
Farnswortli,  In  re  786 

Farrington  vs.  Park  Bank  687 

Farwell    vs.     Importers,    etc., 

Nat.  Bank  265,  282 

Fassett    vs.     First    Parish    in 

Boyleston  33 

Faulkner  vs.  Cuml)crland  Val. 

Bank  794 

Faurc  .Vccumulator  Co.,  In  re     968 


Ferris  \s.  Kilmer 

751 

Field  vs.  Lelean                    443, 

934 

vs.  Sawyer 

958 

vs.  Tibbetts 

688 

Finan  Ins.  Co.,  In  re 

404 

Finch  vs.  Blount 

910 

Fine  vs.  Ilornsby 

889 

Fine  Art  Soc.  vs.  Union  Bank 

670 

Finlay  &  Co.  vs.  Kurtz 

836 

P'inley  vs.  McCormick 

873 

Finnegan  vs.  Lee 

651 

Finney  vs.  Gallaudet             213 

214 

Firbank  vs.  Humphries 

733 

Fireman's  Ins.   Co.,   Ex  parte 

850, 

852 

First  Nat.  Bank  vs.  Armstronj!; 

790 

vs.  Charlotte 

173 

vs.  Hall 

383 

vs.  Hoch     173, 

240 

vs.  Miller 

163 

vs.  (Xskaloosa 

550 

vs.  Peisert  798 

799 

vs.  Peltz    787, 

794, 

795 

vs.  Schreiner 

794 

vs.  Strang 

911 

vs.  Taliaferro 

284, 

463 

Fischer  vs.  Raab 

54 

Fi.sh  vs.  Fiske                      147, 

156 

vs.  Kempton 

7.55 

Fisiie  vs.  Ellis 
Fisher  vs.  Bidwel 


863 


Fay,  Matter  of 

168, 

169,  170 

vs.  Board 

of 

Trade    of 

Fay  vs.  Gray 

259,  778 

Chicago 

62, 

108 

vs.  Slaughter 

726 

vs.  Brown 

4.58 

462 

467 

777 

\s.  Wheeler 

895 

vs.  Fisher 

547, 

587, 

691 

F'ayetville  Bank  vs.   ] 

.utterloh  863 

vs.  Keane 

64, 

102 

Feit  vs.  Heye 

717 

vs.  Moller 

299 

Fenn  vs.  Curtis 

624 

vs.  Morris 

652 

Fenton  vs.  Robinson 

686 

vs.  Otis 

699 

Fenwick  vs.  Buck 

1012 

vs.  Waltham 

516, 

517 

Ferguson  vs.  Fyffe 

273 

Fit 

zgerald  vs.  Blochcr 

356 

vs.  Paschal! 

829,  836 

Fit 

zp; 

itrick   vs.  V 

utter 

51 

vs.  Wilson 

821 

vs.  Woodruflf 

896 

Table  of  Cases. 


XXXIU 


Fitzsimmons,  Matter  of  B 

38 

Matter  of  J 

38 

Flagg  vs.  Baldwin 

527, 

592 

vs.  Gilpin 

527 

vs.  Mann 

320 

vs.  Swift 

53 

Fleet  vs.  Murton 

761 

vs.  Wernberg 

590 

Fleming  vs.  Thomas 

873 

vs.  Hector 

29 

Fletcher  vs.  Dickinson 

347 

vs.  Green 

730 

vs.  Marshall  209, 

211, 

225, 

23.5, 

432, 

775 

Flour noy  vs.  First  N 

at.  ] 

iank 

794 

Flowers  v.s.  Sterner 

896 

Floyd   Acceptances 

649 

F^loyd  vs.  Patterson 

511, 

512 

Foley  vs.  Holtrey 

624 

vs.  Tovey 

57 

Foil's  .Vppeal 

833 

835, 

847 

Foote  vs.  Smith 

338 

Ford  vs.  Chicago     Milk 

5hii> 

pers  .\.ssn 

67 

vs.  Thornton 

786, 

790 

Forget   vs.  Baxter 

220, 

425 

vs.  Ostigney 

5.52, 

575 

Forest  vs.  Peel  Ri\'er 

Co. 

911 

Forrest  vs.  Elwes 

824, 

866, 

871, 
914 

Fort  Dearborn  National 

Bank 

vs.  Blumcnthal 

787 

Fortenbun.-  vs.  State 

50<) 

Fosdick  vs.  Green 

3-29 

912 

vs.  Myers 

.502 

F088  v.x.  Cuminings 

.500, 

645 

Foster  vs.  Harrison 

98 

Fourth  Nat.  Bank  0 

r  Chicago 

vs.  City  Nat.  Bank 

of  (j 

rand 

Rapids 

7SC. 

7.S7 

792 

Fowie  vs.  Ward 

772 

FowUt    vs.    .Nc'w    York 

CJold 

Kx(liaii;:o  Bank 

.'ilS. 

9 1 6, 

918. 

927 

,  934 

936 

Fox  VH.  Marroth 

:i82 

Fox  vs.  Martin  279 

vs.  Steever  501 

France  vs.  Clark  471,  716 

vs.  Gaudet  927 

Francis  vs.  Taylor  627 

Franklin   Ben.   Assn.   vs.  The 

Commonwealth  110,  112 

Franklin  \s.  Osgood  393 

Frazer   ^'s.  DTnvilliers  649 

vs.  Jones  800 

Frazier  vs.  Simmons  499 

Freeman  vs.  Harwood  777 

French  vs.  Boston  Bank  848 

vs.  Com.  Ex.  165 

vs.  Sanger  889 

Freon  vs.  Carriage  Co.  853 

Freund     vs.     Importers,  etc., 

Bank  659 
Friedlander  vs.  Slaughter  House 

Co.  726 

Frith  vs.  Cartland  798 
Fritz  vs.  Muck     44,  95,  96,  108,  110 

Froggett,  Ex  parte  800 

Frost  vs.  Clarkson  489,  490 

vs.  Stokes  861 

Frothingham  vs.  Morse  911 

Fuller  vs.  Steiglitz  792 

Fullerton  vs.  State  512 

Futcher  vs.  Futcher  899 

Fyfe  vs.  Swaby  824 

G. 


Gaar  vs.  Louisville  Co. 

672 

Gad.><dcn  vs.  Lance 

897 

Gainsford  vs.  Carroll 

912 

Galbraith    vs.     People's 

Bldg. 

A.ssn. 

852 

Gale   vs.  Grannis 

873 

vs.  Townsend 

50 

Galigher  vs.  .Jones       206 

207, 

211, 

2*)7 

927 

(lallairhcr.  In  ro 

159 

(JardcniT  vs.  PulU-n 

S14, 

815, 

822 

,823 

Gardiner  vs.  Meeker 

501 

XXXIV 


Tahle  of  Cases. 


tiardiicr  as.  Allen  To") 

vs.  First      National 

Bank  7'.»l 

vs.  Frcnuintle  lOO 

v.s.  Powell  Iri') 

Garlick  vs.  James  849 

Garrard  vs.  Ilardey  S,  10 

Garth  vs.  Ward  (ISl 

Garvin  vs.  Wiswall       TOd.  7'22.  911 

Gaston  vs.  .\iner.,  (•t<'.,   Hank     712 

Gates   vs.  Haekenthal  .S73 

vs.  Halliday  26.5 

Gaw  vs.  Bennett  516,  569 

Gay  vs.  Dare  910 

vs.  Mo.ss  348 

Gaylord,  In  re  158 

Gay  lord  a's.  Duryea  596 

Gazzam  vs.  Simpson  899 

Gebhard  vs.  X.  V.  ("lui)  97.  104,  106 

Gelpcke  vs.  Dubuque  653,  655 

Gelster  as.  The  Syracu.se  Sav- 

in<is  Bank  322 

General    Provident    .\ssurance 

.\.ssoc.,   In  re  7S6 

Genet  vs.  Howland     337,  340,  344, 

348,  356 

Genin  vs.  Isaacson     207,  208,  213, 

245,  255,  388,  492, 

883,  890 

vs.  Tompkins  389 

George  vs.  Braden  312 

vs.  Clagett  709 

Georgia  Seed  Co.  vs.  Talmadge 

792,  801 
German  Bank  vs.  Foreman  787,  795 
German  Land  -Association  vs. 

Scholler  36 

German  Savings  Bank  vs.  Ren- 

shaw  284,  416,  702 

German  I'nion  Bldg.,  etc.,  vs. 

Scudmeyer  852 

Geyser-Marion  Gold  Mining  Co. 

vs.  Stark  417,432,712 

Gheen  vs.  Johnson  220,  244, 

394,  .563 


Ciibhons  vs.  IIccox 
vs.  Rule 

(iibney  vs.  Curtis 

Gibson  vs.  Crick 
vs.  Fristoc 
vs.  MeCall 

Giddings  vs.  Sears 

Gieve,  Re 

Gilbert  vs.  Erie  Bldi 


7S7 

3,  5,  9.55 

416 

785 

865 

38 

939 

538,  603 

Assoc.     703 


vs.  Gaugar       203,  .501,  580 
vs.  Marsh  793 

vs.  McGinnis  416 

vs.  Sharp  687 

vs.  Sykes  517,  518 

Gilbough  vs.  Norfolk  it  Peters- 


burg R.  R.  Co. 
Giles  vs.  Perkins 
Gill  vs.  Cubitt 

vs.  O'Rourke 
Gillett  vs.  Bate 
Gillet  vs.  Fairehild 
Gillett  vs.  Peppercorne 


653 

786,  792 

671,  685 

221 

162 

657 

366,  372, 

384 

vs.  Whiting    192,   213,  232, 

233,  335,355,391,434, 

770 

Gilman  vs.  New  Orleans,  etc., 

R.  Co.  653 

Gilpin  vs.  Howell  193,  254 

Girard  vs.  Taggart  755 

Gist  vs.  Telegraph  Co.  505 

Glardon     vs.     Supreme,     etc.. 

Lodge  04 

Glendinning,  Matter  of  163 

Glenn  vs.  Garth  216,  752 

Glidden  vs.  Bank  383 

Globe  Finance  Corporation,  In 

re  807,  809 

Glyn  vs.  Baker  051,  0()6,  670 

Goddard  vs.  Garner  414 

vs.  Lethl)ridge  870 

A's.  Merchants'  Bank      60, 

70 

Godefroi,  Ex  parte  573 

Goe.sely  as.  Bimeler  36 


Table  of  Cases. 


XXXV 


Goldschuiidt  vs.  Jones  1022 

Goldstein  vs.  State  512 

Gooch  vs.  Holmes  SS9 

Good  vs.  Elliott  517 

Goodenow  vs.  Tyler  301 

Goodhart  vs.  Rostert  503 

CJoodman  vs.  Harvey  671,  083,  GS5 
vs.  Simonds         684,  685, 
686, 691 
Goodspeed   vs.   East   Haddam 

Bank  739 

Goodwin  vs.  Robarts  278,  463. 

650,  651,655,  663,  66(5,  667,  670, 

672.  705,  721,  880 

Goodwin  Gas  Stove  &  Meters 

Co.'s  Appeal  846,  847 

Goodyear  vs.  Ogden  432 

Gordon  vs.  Miichler  787 

Gorpiier  vs.  Milville  650,  777 

Gottisehale  vs.  Stein  847 

Gould  vs.  Farmers'     Loan     it 

Trust  Co.  277,  795 

vs.  The    Central    Trust 

Co.  290,  201,  795 

vs.  Trask    274,305,306,346, 

355 

Graff,  In  re  290 

Graham  vs.  O'Connor  826 

Gram  vs.  Stebbins       491,  493,  829 

Granite  Bank  vs.  .\yres  338 

vs.  Richard.son     350 

Grant  vs.  Hamilton  518 

vs.  Taylor         788,  795,  798, 

801 ,  SOS 

vs.  Vau^han  664 

Grant,  E.\  parte.  Re  Piumbly 

122,  123,  126,  9S0 

Graves  vs.  Colby  52 

VH.  Mining;  Co.  706 

Gray  vh.  liennett  S<)3 

VH.  Collins  023 

VH.  Green  79 1 

VH.  HaiR  219,  2()> 

VH.  Ijcw'w  62.S,  630 

VH.  IVairnon  52 


Gray  vs.  Portland  Bank  852,  903 
Greathouse  vs.  Throckmorton  518 
Greeley  vs.  Doran-Wright  Co. 

411,   429 
Green,  In  re  555 

Green  vs.  African       Methodist 

Soc.  130 

vs.  Board  ot  Trade     60,  62, 

96,  97,  98 

vs.  Brookins  311 

vs.  Camden  Nat.  Bank    801 

vs.  Higham  629 

vs.  Weaver  379,  403, 

957,  959 

Greenby  vs.  Kellogg  656 

Greene  vs.  Jackson  Bank  790 

vs.  Security  Bank  792 

Greenfield  School  vs.  Bank         799 

Greenhow  vs.  Harris  865 

Greening  vs.  Wilkinson  911 

Greenland  vs.  Dyer  485,  647 

Greenmount  Turnpike  Co.  vs. 

Bulla  856 

Greenough  vs.  Gaskell  401 

Greenwood's  Case  30 

Greer  vs.  Stoller  40,  71,  109 

Greesboro  Bank  vs.  Clapp  799 

Gregory,  E.x  parte,  \s.  Wake- 
field" 293 
Gregory  \s.  Bewley                      873 
vs.  Wattower                 504 
vs.  Wendell  352.  393,  544, 
517,  617,  SIO 
Griffith's  Api)c:il  569 
Griffitlis  vs.  Sears                            569 
Griffith  vs.  Burden                        911 
vs.  Western  Union  Tel- 
egraph Co.               .503 
Grigg  vs.  Medical  Soc.  lOS 
Grig^'s  vs.  I):iy               926.  935.  93S 
Grimes  vs.  Hill('iil)r.ind                 (iS7 
Griiinrll.  In  re                                352 
GrinM.'ll  vs.  fook                           80fi 
(Jri.ssell  vs.  Uristowc           992.  1012, 
1013,  KM  7,  1032.  1033,  103U 


XXXVl 


Table  of  Cases. 


Gnswold  vs.  Grejig 
Grizewood  vs.  Blane    519,  .537, 


151, 

k   of 

20.5, 
2{).-), 
92.5, 


Grocers'  Bank  vs.  Murphy 

Grover  vs.  Grover 

Grubey  vs.  National  Han 
Illinois 

Gniman  vs.  Smith  192, 
232,  2.55,  263,  264,  276, 
336,  342,  347,  34S,  353, 

Gnmer  vs.  Stucken 

Gulick  vs.  Markhani 

Gurley  vs.  McLennan 

Gwyn  vs.  Godby 

H. 

Haas  vs.  Durant  415, 

Habenicht  vs.  Lissak  147,  154, 
Hackett  \'s.  Reynolds 
Haebler,  In  re,  vs.  X.  Y.  Pro 
duce  Ex.  16,  60,  61,  64,  68 
89,  96, 
Hafner  vs.   lierron 


500 
539, 

645 
1.50, 

1.56 

657 

.501 
230, 
335, 
93S 
600 
778 
300 
271 


376, 
398, 
Flagar  vs.  Kinji  889, 

Haggart  vs.  Morgan 
Hagood  vs.  .Vtkin 
Haight  vs.  Child 

vs.  Dickerman  45,   60, 
115, 
Hair  vs.  Burnell 
Hajek  vs.  Bohemian  Society 
Hakman  vs.  Sciiaaf 
Halfhide  vs.  Feiming  140, 

Hall   vs.  Barrett 
vs.  Law 
vs.  Wilson 
Halstead  vs.  Seaman 
Halwerson  vs.  Cole 
Hambleton    vs.    Central    Ohio 
R.  H.Co.  726, 

Hamblett  vs.  Bennett 
Hamorvs.  Hatliaway 
Hamilton  vs.  Moore  472, 


785 
1.55 
790 

,  88, 
136 
396, 
400 
896 
135 
863 
899 
61, 
428 
855 
51 
787 
141 
501 
548 
686 
139 
432 

729 

37 

929 

873 


Hamilton  vs.  Schaack  366,  .383 

vs.  State  Bank  353,  364, 

383 

vs.  Young  369,  372, 

411,  422,  472 

Hamlin  vs.  Fitch  869 

Ilannnond  vs.  Messenger  658 

Hancock  vs.  Bank  787 

Hanke  vs.  Cigar  Makers'  Union     42 

Hanks  vs.  Drake  192,  3.36,  346 

Hanscom  vs.  Hendricks  114 

Hansen  vs.  Boyd  213,  220, 

427,  778 

Hanson  vs.  Slaven  842 

Harben  vs.  Phillips  250 

Hardenbergh  vs.  Bacon       812,  842 

Harding  vs.  Field      219,  244,  245, 

2.55,  264,  428,  4.34,  768 

Hardoon  vs.  Belilios  10.37 

Hardwiche,  Earl  of,  vs.  Vernon  768 

Hardy    vs.  Jaudon  261 

vs.  Peters  337,  775 

Hargreaves  vs.  Parsons       603,  880 

Harker  vs.  Edwards  220,  228, 

425,  446,  474,  784 

Harkness  vs.  Remington  57 

Harper  vs.  Pond  665 

Harnett  vs.  Yielding  812,815 

Harris  vs.  Ely  937 

vs.  Knickerbocker  899 

vs.  N.  D.  Ry.  Co.  819 

vs.  Pryor  306,  326,  329,  .342 

vs.  Tumbridge  204,  212,  213, 

308,  366,  405,  455,  602, 

60() 

Harrison  vs.  Harri.son  (1)  713 

vs.  Harrison  (2)  914 

vs.  Hea thorn         10,    475 

Hart,  In  re  573 

Hart  vs.  Frontino  Co.  732 

vs.  Garrett  396 

vs.  Ten  Eyck  398 

Hartervs.  Eltzroth  225 

Hartga  vs.  Bank  of  England      720 

Hart's  Case  828 


Table  of  Cases. 


XXXVll 


Hartas  vs.  Ribbons     228,  235,  46S, 

7S4,  1010 

Har^•ey  ^.s.  Doty  505 

"  vs.  .Merrill  582 

Hasbrook  vs.  Vandervoort  265 

Haseltin  vs.  Sig,<j;ers  650,  S79 

Ha.-^kins  vs.  .Vlcott  40,  41 

Hatch  vs.  Bank  799 

vs.  Dousilas     201,   206,   271, 

274,  .')27.  r),S6,  872 

vs.  Elkias  237 

vs.  Fourth         National 

Bank  803 

Hathawav  vs.  \m.     Min.     St. 

Ex.  46 

vs.  Bank  795 

HausbrouRli  vs.  Baylor  865 

Havemayer,  In  re  180 

Havemeyer  vs.  Havemeyer  640 

Hawarden  vs.  Coal  Co.  618 

Hawkins  vs.  Maltby  229,  818, 

827,  82S,  999,  1009, 

1011,  103!),  lOlO, 

1012,  1044 

Hawley   vs.  Bibb  531 

vs.  Brumagim  255 

vs.  Jones  647 

V.S.  Kountz  272,   860, 

861,  865 

Hayden  vs.  Bank  787,  801 

vs.  Dcmots  909 

Hayes,  In  re  lis,  119,  120,  430 

Hayes   vs.   Mas.sac'hiLsetts   Life 

In.s.  Co.  910 

Haynard  vs.  Rogers  255 

Hayne-s  vs.  Ilatc-h  776 

Hays  vs.  Currie  ISO 

Hayward  vs.  I^e  Baron  S73 

vs.  .\at.  Biink      777,  77S 

Hiizarri  vs.  WelLs  791 

Hcjinie  vs.  Ke.-ine  7S1 

Heart  vs.  State  Bank  47f) 

Heath  vs    Griswold  779 

VH.  Malioney  352 

VH.  Pane  870 


Heath  vs.  Prest.    Gold    Ex- 
change    45,    59,    107, 
134,  137 
vs.  Silverthorn  Lead  Co.  250 
Hecht  vs.  Ratcheller  416 

Hecksher  vs.  Gregory  482 

Hedges  vs.  H.  R.  R.  Co.  926,  934 
Hedland  vs.  Dewey  847 

Hegeraan  vs.  McCall  650 

Hegibben  vs.  Perin  840 

Heidelbach  vs.  National  Bank  792 
Heidenheimer  vs.  Cleveland  512 
Heist  vs.  Hart  681 

Hellman's  Est.  163,  164 

Helm   ^•s.  Jesse  873 

vs.  Swiggett  857 

Henckle}-  vs.  Hendrickson  908 

Henderson  vs.  Barnewell  891 

vs.  Bise  479 

vs.  State  170 

Henegar    vs.    Lsabella    Copper 

Co.  90S 

Hennequin  vs.  Clews  781 

Henning    vs.    N.    Y.    &    New 

Haven  R.  R.  Co.  7 10 

Henson  vs.  Flannigan  511 

Hentz  vs.  Jewell  576 

Hentz  vs.  Miner  590 

Heritage  vs.  Paine  1019 

Hern  vs.  Nichols  709 

Herrnian  vs.  Maxwell  265 

Hcrtzficld  vs.  Aaron  2;iS 

Herwig  vs.  Richardson  695 

Hess  vs.  Ran        201 ,  326,  329,  3.39, 
.3S7,  431 
vs.  \\  arrcii  61 

He.stonvil!e     R.     R.     Co.     vs. 

Shields  383 

Hewi.son  vs.  Gutlnic  803 

Hewitt   vs.    Price  479 

Hey  wood  vs.  Wat.son  790 

Hi.it t  vs.  (Jriswold  779 

Hil)l.;ird  vs.  Hatch  Co.  S<»3 

liil.liiTt   vs.  McKiniioM         S32.  S37 

Hibl.lclhw.lilc   \s     Bersoii  l(M)9 


XXXVlll 


Table  of  Cases. 


IIiM)l('tli\vaito  vs.  McMoiinc       .")]'.), 
612.  (>1  I.OIC).  lOO'.l.  1(110 
llibcrnia  Fire  ICiii;.  Cn.  \  >.   Tin- 

Coiiiinonwoaltli  .">!),  (50 

Higgiii-s    v.><.  MfCroa  2_'().    157,  .WO, 

-y.iO,  .">80 

v.s.  iruldcll  .57 

\s.  Senior      424,  703,  7G5 

Hijiginson  v.s.  Simpson         519,  552 

Highinore  v.s.  Malioy  953 

Hill  vs.  Johnston  595 

vs.  Morris  393,  411,  432,  430 

vs.  Newichawanick  454 

Hilton  vs.  Giraud  881 

Hinchnian  vs.  Lincoln  889 

Hinckler  vs.    Merchants'  Nat. 

Bank  655 

vs.    Pfister  250 

Hine  vs.  Allen  746 

Hirst  vs.  Maag  524 

Hitchcock  vs.  Corn  Exchange 

Bank  501 

Hixon  vs.  Hixon  907 

vs.  Pixley  779 

Hooker  vs.  Western  l^nion  Tel. 

Co.  504 

Hochreiter's  App.  71 

Hodgkinson  vs.  Kelly         425,  82S, 
999,  1000,  1012,  1037,  1042,  1013 
Hoeffner  vs.  Lodge  01 

Hoffman  v.s.  Livingston     200,  212, 
213,  214,  398,  428,  4.32,  7.53 
Hogan  vs.  Shaw  1008 

Holl^rook  vs.  New  Jersey  Zinc 

Co.  729,  7.34,  730 

Hollingshead  \-s.  Green         207,  298 

Holmes  vs.  D'Camp  770 

vs.  Higgins  30,  42 

vs.  Manning  865 

vs.  Smith  691 

vs.  Symons  1000,  1043 

Holyoke  vs.  Bnrham  206 

Home  Bank  vs.  Xewton  787 

Home  Co.  vs.  Favorite  409 

Hone  vs.  Bovie  278 


Hooker  vs.  Vanderwater  03S 

Hooley  vs.  Gieve  295,  1004 

Hope  vs.  Lawrence  305,  3.S3, 

910,   920 
Hopkins  vs.  Clark       212,   213,  21S 
vs.  Lane  321 

vs.  O'Kanc  198,  .570 

vs.  United  States      21,  (i8 
Hopkinson  vs.  Marquis  of  Exe- 
ter 59, 100 
vs.  Roe  969 
Hopper  vs.  Sage  203,  405,  416,  455 
Iloppin  vs.  Buffum  250 
Hornbec-k  vs.  .\m.   Bil)le  Soc.       37 
vs.  Sleight  37 
vs.  Westbrook  37 
Horner's  Est.                                  785 
Horsfall  vs.  Halifax  Bank           787 
Horton  vs.  Morgan  245,  246,  255, 
425,  433,  451 
Hotchkiss  vs.  Ladd                       899 
Houghton  vs.  Page                      863 
Howard   vs.  Brigham           190,  3.50 
Howard  Bank,  Ex  parte               786 
Howe  vs.  Buffalo,     N.    Y.    <t 

Erie  R.  II.  Co.         938 
vs.  Starkweather  494 

Howell  A's.  Earp  36 

Howlej^  v.s.  Knight  52 

Hoy  vs.  Reade  801 

Hubbard  vs.  Sayre  599 

Hubl>ell  vs.  Blandv  243 


vs.  Drexel 


245,  255, 


428,  452 

vs.  Meigs  904 

Hudson  vs.  Spalding  53 

vs.  Weir  887 

Huff  vs.  Wagner  695 

Hughes    vs.    Vermont   Copper 

Co.  778 

Humbert  vs.  Abeel  47,  53 

Humble  vs.  Langston       247,   827, 

1035 

vs.  Mitchell  879,  887,  888 

Humboldt  Township  vs.  Long     672 


T:i]>le  of  Cnsos. 


XXXIX 


Iluinfroy  vs.  D.ilo  111,  TOO, 

Hunt,  In  re 

Hunt    vs.  Chamberlain 

vs.  Gunn  220,  222, 

vs.  Jones 
Hunter  vs.  Walters 
vs.  Wetsell 
Huntiniidon  vs.  English 
Huntinjrton  \s.  Knox 
HuntiiiiTton  i^c   Broad   Top  R. 

R.  vs.  Ens 
Hurst  vs.  X.  Y.  Produce  Ex. 
SS,  S9,  109,  119, 
Huse    &    Loomis    Ice   Co.    v.s. 

Heinze 
Hussey  vs.  Crickitt 

vs.  Manufacturers'      & 
Mechanics'  Bank 
Hustis  vs.  Pickands  176, 

Huston  vs.  Ruethinger 
Hutchins  vs.  Olcutt 

vs.  State  Bank 
Hutchinson  vs.  Bowkers 
vs.  Dee 

vs.  Lawrence      44, 
95,  96,  97, 
110, 
vs.  Manhattan  Co. 
Huth  vs.  Humboldt 
Hyatt  vs.  Argenti         307,  353, 
Hyl)art  vs.  Parker 
Hyde  vs.  Wolf 
vs.  Woods 


16,  22,  60, 
148,  151, 


Hvide  vs.  liadford 


63 
593 
476 
,820 
884 
726 
894 
912 
755 

902 

136 

904 
517 

906 
399 

64 
806 
714 
432 
927 
,90, 
107, 
428 
790 

49 
364 

52 
765 
113, 
153 
787 


I  kin  v.s.  Bradley  271 

llliniiworth  vs.  De  Mott  369 

Illinois    ConmiisHion     Co.     vs. 

Cleveland    Tel.    Co.  2(i 

Illinois  Trast  and  Savinpi  Bank 

VH.  Im  Tounhe  501 

Imperial    Mercantilf   Credit 

AnsfK'.,  Inn?  -  10 


Iniportci-s'     it     Grorors'     Ex- 
change, In  re  56 
Inchbakl  vs.  Cockcrill                    519 
vs.  Xeilgherry  Coffee 

Co.  220,  964 

Inderwick  vs.  Snell  64 

India  Association  vs.  Kock         639 
Ingraham  vs.  Disborougli  (598 

vs.  Taylor     206,  255,  527 
Inhabitants    of     Palmyra     vs. 

Morton  59 

Inman  vs.  Swifte  549 

Innes  vs.  Wylie  59,  99 

Innocenta,  The  411 

Ins.  &  Trust  Co.  as.  Cole  885 

Ins.  Co.  vs.  Sturges  872 

International  Bank  vs.  Jones       801 
vs.  Vankirk  500 
Investment  Co.  vs.  Eldridge       624 
Ireland  vs.  Livingston  206 


Irvine  vs.  Angus 
vs.  Dean 
vs.  Dunhani 

Irwin  vs.  Williar 

Isett  vs.  Ogilvie 
Isham  vs.  Post 


830 
797 
830 
422,  439,  535, 
578,  589,  598 
273 
218,  226,  227, 
745,  747,  773 
Iveson  vs.  Connington  762 


J. 

Jackson  vs.  Bank 
vs.  Cocker 
vs.  Corey 
vs.  Cunimings 
vs.  Foote 
vs.  Jacob 
vs.  South 
Live 


818, 

802, 
501, 


Oinaii.'i 
Stock    Ex. 
.59.  67 
vs.  Y.  it  C.   Railnmd 
Co.  6.')2, 

Jameison  vs.  Wallace 
James  vs.  .Morcy 

\s.  W'oodrulT 


547 
824 
37 
806 
580 
7.')8 


,  98 

6.5.3 
.531 
()99 
490 


xl 


Tiihlo  of  Casos. 


James's  Appeal  809 

Jamison,  In  re  200 

Janssen  vs.  Green  954 

Jarvis  vs.  Manli.attan    Beach 

Co.  7-42,  9-10 

vs.  Sohaefer  393,  -JOO 

Jaudon  vs.  National  City  Bank  711, 

717 
Jaycox  vs.  Cameron  322 

Jemison  vs.  Citizens'  Savinfjs 

Bank  589 

Jenkins  vs.  Nat.  Village  Bank  241 
Jenkinson,  In  re  1002 

Jenkinson  v.s.  Wysner  51 

Jennie     Clarkson     Home     vs. 
Chesapeake  R.  R.  Co.     432,  726, 

733 
Jerome  v.s.  McCarter  352 

Jessopp  vs.  Lntwyche  552,  963 

Johns  vs.  Johns  889 

Johnson  vs.  Albany  <k  S.  R.  R. 

Co.  '  842 

vs.  Bank  799 

vs.  Brooks  316,   829,   844 
vs.  Humphrey  787 

vs.  Kaune  550 

vs.  Kirby  838 

vs.  Mulry       494,  890,  892 
vs.  Osborne  424 

vs.  Payne  &  Williams 

Bank  798 

vs.  Undorhill  268 

vs.  Williamhurst  865 

vs.  Williams  176 

Johnston  vs.  Miller  342,  .506 

vs.  Parsey  724,  726 

vs.  Ronton   724,  726,  730 

vs.  Rus.sell  518 

vs.  Trask     311,  773,  896 

vs.  U.sborne  471 

Jonau  vs.  Ferrand  404 

Jones  vs.  Ames  499 

vs.  Brinley  10 

vs.  Brown  846 

vs.  Chamberlain  903 


Jones 


v.s.  Fisher 
vs.  Frost 
vs.  Gallagher 

Kent 

Lewis 

Litlledale 


vs 


785 


751, 


vs.  Marks  29S,  .300,  77  1, 


vs.  Montreal  Bank 

vs.  Xewhall 

^■.s.  Peppercorne, 


788, 
807, 


vs.  Powell 

vs.  Railroad  Co. 

vs.  Randall 

vs.  Shale 

vs.  Smith 

vs.  Times 

vs.  Wattles 

vs.  Williams 
Jordan  vs.  Nat.  Shoe  &  Leather 
Bank 
vs.  W^eston 
Josephs  vs.  Pebrer        239,  476, 
Jourdaine  vs.  Lefevre  786, 

Joyce  vs.  De  Moleyns 
Judah  ^'s.  Marsh 
Judson  vs.  Etheridge 
Judy  vs.  Farmers'  Bank 
Justh   vs.  Bank 

vs.  Holliday       532,  .581, 
Justice  vs.  Lang  890, 

K. 

Kahn  vs.  Walton  503,  599 

Kanady  vs.  Burke  331 

Karcher  ^■s.  Lodge  64 

Kaufman  vs.  Herzfeld  776 

Kean  vs.  Franklin  52 

Keiran  vs.  Hoyt  382 

Kelley   vs.  Lewis  865 

vs.  Upton  389 

vs.  WHiitney  688 

vs.  York  Cliff  Co.  839 

Kellock  vs.  Enthoven  827 


128 
397 
809 
317 
242 
7()3 
80(;, 
810 
786 
829 
800, 
808 
969 
455 
517 
550 
899 
836 
894 
713 

792 
195 
966 
788 
800 
776 
806 
797 
799 
(iOl 
893 


Table  of  Cases. 


xli 


Kellogg  vs.   Lehigli  Valley   R. 

Co.  ^  627 

Kelly   vs.  Munson  755 

vs.  Sprague  870 

Kemble  vs.  Atkins       379,  958,  963 

Kemp  vs.  X.  Y.  Produce  Ex. 

164,  168,  169,  170 

Kenfield  vs.  Latham     193,  3.53,  3.56 

Kenicott  vs.  Supervisors  699 

Kennedy  vs.  Budd  236 

vs.  Stout  500,  531 

Kent  vs.  Ginter  902,  903 

vs.  Miltenberger  593 

vs.  Quicksilver       Mining 

Co.  71 

vs.  Westbrooke  296 

vs.  Woodhull       419,  465,  590 

Kenyon  vs.  Luther  589 

Kerhoff  vs.  .\tlas  Paper  Co.         508 

Kerr  vs.  City  of  Corry  653 

vs.  Trego  110 

Kershaw  vs.  Wright  411 

Ketchuin  vs.  Clark  768 

Ketchum,  Bankrupt,  Matter  of 

156,  158,  159 
Keystone   Bridge  Co.   vs.   Mc- 

Cluney  270 

Kiernan  vs.  Co.  26 

Kierstead  vs.  Bennett  53 

Kilbourn  vs.  Tiioinp.son  203 

Kilbride  vs.  Mo.s.s  897 

Kill  vs.  HoUister  135,  140 

Kimball  vs.  Billings  679 

vs.  WiiliaiMS  .121 

Kimber  vs.  Barber     366,  .374,  .382. 
.384,  .385 
King  vs.  B;inkof  Kngl.ind  8J9,  8.50, 

851 
vs.  De  IferengJT  619,  r.3s 

VH.  Grimtlis  112 

va.  HutUin  126,  200,  445,  782 
vs.  Lufkry  .501 

VH.  Tull)ot  .397 

vs.  Wi>M!  .320 

Kin«,  K.x  parte  126,  200 


King,  Tlie,  vs.   Bank  of  Eng- 
land       849,  8.50 
vs.   De    Berenger    619, 
638 
Kingsbury  vs.  Kirwin  425,  4,36,  612 
Kingsland  vs.  Braisted  53 

Kingston,  Ex  parte  798 

Kinne  vs.  Ford  513 

Kirkpatrick  \s.  Adams  580 

vs.  Housall     ,548,    ,569, 
611 
vs.  Muirhead  694 

Kissam  vs.  Anderson  745 

Klaus,  In  re  855 

Knapp  vs.  Cowell  801 

vs.  Simon  228,  751 

Knickerbocker  Life  Ins.  Co.  vs. 

XeLson  860 

Knickerbocker  vs.  Gould    347,  391, 

785 

Knight  vs.  Barber  880 

vs.  Chambers  552,  572,  785 

vs.  Fitch  485,  552,  572,  785 

vs.  Wiffen  732 

Knowlton  vs.  Fitch     201,  275,  323, 

328,  331,  335,  3,57, 

485,  499 

Knox  vs.  Eden  Mu.see  Co.  701,  702 

Knox  County  vs.  Aspinwall  552,  653 

Kobogum  vs.  JacLson  Iron  Co.  843 

Koehler  vs.  Brown  31 

KolIT  vs.  Exchange  109 

Kr>lsky  vs.  Enslen  8.38 

Kortjohn  vs.  Continoiital  Bank  792 

Kortright  vs.  Buffalo  Bank  8.50 

Kosiikonong  \s.  Burton  6.54 

Kountze  vs.  Kemiedy  624 

Krake  vs.  .Mexandor  529 

Kratt  vs.  Hopkins  216 

Kniuse  \s.  S<'tlev  500 

Kreigh  vs.  Sherman  500 

Kronfield  vs.  Haines  39 

Kruse  vs.  Kcmictt  .501,  .531 

Kurliiiciiiuiidf  VS.  Smifh  15,  73, 

95,  96,  97,  107 


xlii 


Tablo  of  (\isos. 


Kulh  vs.  T^nitod  St.-ifos       iuA).  (MS, 
(ISH,  (ISl 
Kullnienn  vs.  Siinun'iis         .")()7,  ')'.)S 
Kurz  vs.  K.niicit  is 

Kut/  vs.  Fleisclior  T)!*? 

L. 

Labouchero  vs.  Earl  of  Whani- 

flilfo  li.",,  !)'.) 

Labouisse  vs.  Evening  Post         ()2S 
Lacey   vs.    Hill     (Scrinigeour';^ 

Claim)  233,  347, 
38G,  3S7,  420, 
424,  436,  438, 
453,  992,  995, 
1001,  1001 
(Crowley's 
Claim)  7S4, 

1006,  1010 
Lacombe  vs.  Forstell's  Sons  3S1 
Lady  Ormond  vs.  Hutchinson  768 
Lafayette  Bank  vs.  Hill  7SG 

Lafond  vs.  Deems  28,  40,  54, 

104,  139 
La  Gar  vs.  Carey  590 

Laing  vs.  Blumauer  241 

Lamb  vs.  Morris  787,  792 

Lambertsou  vs.  Van  Boskerk  779 
Lamert  vs.  Heath  190,  220,  222 
Lamm  ^■s.  Post  Deposit  Home- 
stead Assoc.  739 
Lamson  vs.  Beard  744 
Lamsen  vs.  Boyden  501,  645 
Lane  vs.  Bailey  795 
vs.  Logan  Grain  Co.  614 
Lang  vs.  Smitli  650,  651,  655 
Langton  vs.  Waite  252,  258,  260, 
472,  1002 
Larminie  vs.  Carley  233,  774,  810 
Larrabee  vs.  Badger  207 
Lassen  vs.  Mitchell  351 
Lathavo  vs.  Barber  487 
Lathrop  vs.  Brown  776 
Lanbach  vs.  Lavibach  903 
Laugh  ton  vs.  Griffin                    618 


LaNorty  vs.  Snethan  777 

Lawford  vs.  Harris  210 

Law   (luuranteo,    etc.,    Society 

V-;.  li.ank  of  England  S5() 

Lawrence  vs.  Bank  7s7 

vs.  Clark  693 

vs.  Maxwell        191.    255, 

259,  425,  434.   l.")l,  921 

Lawson    \s.  Hcwell  6  1 

vs.  irichards  421 

Lawton    vs.  Hiitch  .WS 

vs.  Hickman  476 

323,  331,  434 

841 


Lazare  vs.  Allen 

Leach  vs.  Forbes 

vs.  Haight 

Lcahv  vs.  Lobdell 


776 
181,352, 
758,  80f) 
712 
964 
870 
255 
208,  438 
392 
677,  686, 712 
532 
236 


Leake  vs.  Watson 
Learoyd  vs.  Bracken 
Leavitt  vs.  Pell 
Le  Croy  vs.  Eastman 
Ledd}'  A's.  Flanagan 
Ledoux  vs.  Goza 
Ledwich  vs.  McKim 
Lee  vs.  Boyd 

vs.  Gargulio 

Leech  vs.  Harris     15,    21,    22,    47, 

60,  62,  69,  73,  74,  80, 

90,  107,   130,   137,   145 

V.S.  Leech     47,  60,   116,   150 

Leggett    vs.  Bank  of  Sing  Sing  717 

vs.  Waller  146,  155 

Lehman  vs.  Feld  60,  335,  439,  579 

vs.  Mfg.   Co.  786 

vs.  Strassberger  575,  646, 

647 

Lcitch  vs.  Wells    682,  705,  714,  722 

Leland,  Matter  of  672 

Lc  .Marchant  vs.  Moore       281,  282, 

284,  285,  394 

Lemonius  vs.  Mayer  510 

Lenheim  vs.  Wilmarding  694 

Leonard  vs.  Hart  499 

vs.  Poole         203,  406,  641 

Leonardville  Bank  vs.  Willard      46 


Table  of  Cases. 


Xllll 


Le  Roy  vs.  Mathewson 
Lester  vs.  Buel 
Lett  vs.  Morris 
Leveson  Gower  vs.  May 
Le  Vie  vs.  Fenlon 
Levitt  vs.  Hamblet 


295 

503 

65S 

21S 

848 

442,  4G9, 

470.    1030 

Levy  v.s.  Loeb  251,  255,  261, 

263,  377,  384,  396,  400 

Lewis  \s.  Andrews  312 

\s.  Graham  348 

vs.  Ingersoll  393 

vs.  Littlefield  525 

vs.  Varnum  346 

vs.  Wilson  45,  60,  61,  64,  73, 

90,94,95,97,  104,  107, 

607 

Lexington  vs.  Butler  653 

Leycraft  vs.  Dempsej'  769 

I^eyton  vs.  Sneyd  300 

Licliten  vs.  Vernor  269,  760 

Liederkranz  Singing  Society  vs. 

Turn-Verein  48 

Lisigett  vs.  Lad  37 

Liggett  Co.'s  .\ppeal  795 

Lightfoot  vs.  Creed      225,  823,  986 

Lilly  vs.  Rankin  552,  1007 

Linden  vs.  Silverston  209 

Lines  vs.  Shepard  217 

Lis-set  vs.  Beave  758 

Little  vs.  Barker  295,  348,  865,  871 

Livennore  vs.  Bushnell  638 

Live  Stock  Conmu.s.sion  Co.  vs. 

Live  Stock  Exchange    21,  26,  32, 

60,  63,  64.  66.  69,  142.  145,  162 

Lloyd  vs.  GillxTt  424 

vs.  Howard  687 

vs.  Loaring  1.35 

\K.  Scott  863 

Ijjcke  vs.  Fowler  501 

vs.  Pre«cott  798,  802 

Ixwk  Haven  Bank  vs.  Pelt/,         7h7, 

79 1 ,  795 

I/<MkwfMHl    VS.  Beckwith  792 

VM.  Thome  769,771 


Loder  vs.  Keknl('«  927 

Logan  vs.  Musiek  012 

Lombardo  vs.  Case  414,  453,  455 
Londheim  vs.  White  154,  161 

London  and  Canadian  Co.  \s. 

Morphy  146,  147,  154,  163 

London  and  County  Bank  vs. 

London     and     River     Plate 

Bank  471 

London    and     Globe     Finance 

Corp.,  In  re  807 

London  Bank  of  Scotland,  Ex 

parte  819 

London  Bank  vs.  White  786,  788 
London,  etc.,  Co.  vs.  Duggan  278 
London,  etc.,  vs.  Brandon  379,957 
London     Founders    .\ssn.     vs. 

Clarke  247,  444,  756,  1043 

London,  Hamburg,  etc.,  Bank, 

Zlueta  "s  Claim  238,  239 

London  Joint  Stock  Bank  vs. 

Simmons,  In  re  247,  446,  650,  671 
London  vs.  Bernardiston  133 

London  vs.  London  6.50 

Lonergan  vs.  Peck  376 

\s.  Stewart  409 

Long  Island  Loan  it  Trust  Co. 

V.S.  Coioinl)us,  etc.,  R.  R.  Co.  688 

Long  vs.  Conklin  903 

\s.  Constant  6.58 

Looniis  vs.  Stave  3.53,  364 

Lord  Boiingbroke's  Ca.se  799 

Loring   vs.  Davis       206,  268,  430, 

4S,S,  755,  1037 

vs.  Gurney  430 

vs.  Salisl>ury  Mills         716, 

726.  729 

l^orynicr  vs.  .Smitli       ISO,  612,  ()13 

Loubat  vs.  Le  l{oy     64,  69,  75,  95, 

96,  9S,  102.  104,  105 

Ix>ughiin  vs.  Parkiiisiin  .520 

Loughton  vs.  (Jrillin  519 

Lowe    \s.  \\  iillcr  863 

vs.  ^'ount:  501 

Lowenberg  vs.  (Jrecnebauin         1  17 


xliv 


Tablr  oi'  Cases. 


Lowenfcld  vs.  Howat 

Lowry    ^■s.  ComiiuTcial     Bank 

714,729,737,869, 

vs.  Dillman 

vs.  Miildrow 

vs.  Reed 
Loyd  vs.  Williams 
Lucas  vs.  Dorrein 
vs.  Harper 
Luders  vs.  Rasmus 
I-udowiski  vs.  Society 
Lviffmaii  vs.  Hoy 
Liilly    vs.  Bank 

vs.  Morgan 
Lum  vs.  Fauntleroy 
Lnptori  vs.  White 
Lurman,  Matter  of 
Lurman  vs.  Jarvie 
Luster,  In  re 

Lutheran  Church  vs.  Gristfjau 
Lydis  vs.  Braman  890,  893,  896, 
Lyle  vs.  Addicks 
Lyne  vs.  .Siesfield 
Lyon  vs.  Bache 

vs.  Culbertson 


409, 
608,  612, 


.■)  4 1 

873 
543 
836 
107 
859 
795 
523 
316 

64 
222 
647 
532 
529 
398 

84 
112 
.552 
110 
900 
848 
554 
782 
585, 
646 
521 
531 

64 
106 


Lyons  vs.  Coe 

vs.  Hodgen 
Lysaght  vs.  Assn. 
Lyttleton  vs.  Blackburn 

M. 

Maberly  vs.  Turton  768 

^lacbryde  vs.  Eykyn  743 

Machinists'     Nat.     Bank     vs. 

Field  729,  736,  737 

MacDowell  vs.  Ackley  59,  71,  94, 
106,  166,  168 
MacKenzie  vs.  Johnston  768 

^Lackey  vs.  Rausch  590 

Mackie  vs.  Requa  282,  285 

Macoun  vs.  Erskine  380,  784 

Maddock  vs.  Rumball  869 

Madison,   etc.,    R.   R.   Co.   vs. 

Norwich  Sav.  Soc. 


742 


Maiit'o  vs.  Atkinson 


302, 
751, 


vs.  Badger 

Magnus  vs.  Bank 

Magruder  vs.  Colston 

Maguire  vs.  Halstead  312,  300, 

Mahoney  vs.  Caperton 

Maitland  vs.  Martin     218,  228, 

Manchester  Bank,  Ex  parte 

Mandeville  vs.  Read 

Manhattan    Bunk    vs.    Walker 
791,  798, 

Manhattan  Co.  vs.  Osgood 

Manhattan    Savings    Inst.    vs. 

X.  Y.,  etc.,  Bank  651, 

685, 

Manley  vs.  Bonnell 

Mann  vs.  Bishop 
vs.  Butler 
vs.  Sands 

Manning  vs.  Klein 

vs.  McClure 

Manningford  vs.  Toloman 

Manton  vs.  Ray 

Manufacturer's  Bank  \ 

Man\ille  vs.  Luwton 

Marbled  Iron  Works  vs.  Smith 

Marbury  vs.  Ehlen 

Marden  vs.  Phillips 

Marean  vs.  Longley 

Marfield  vs.  Goodhue 

Marine  Grain  &  Stock  Ex- 
change vs.  Western  Tnion 
Tel.  Co. 

Marine  Ins.  Co.  vs.  Dalryinple 

Marion  Co.  vs.  Stark 

Mark  vs.  Stanley 

Markham  vs.  Jaudon  181,  182, 

191,  192,  194,  196,  201,  231, 

265,  275,  295,  307,  340,  346, 

362,  417,  418,  420,  421,  431, 

438,  4.52,  779,  921, 

Marks  vs.  Metropolitan  Stock 
Exchange 

Markwick  vs.  Hardington 


199, 


837, 
Jones 


l-M, 
9S.S 
683 
242 
268 
842 
364 
751 
787 

:vu) 

802 

872 

677, 
686 
768 
499 

56 
781 

49 
691 
798 
846 
792 
366 

46 
713 
521 
516 
351 


23 
906 
713 
776 
190, 
255, 
348, 
436, 
932 

522 
386 


Table  of  Cases. 


xlv 


Marland  vs.  Stan  wood  208 

Marnham,  Ex  parte  2G0,  .')19,  541, 

612 

Marsh  vs.  Keating  729,  742 

vs.  Oneida  Bank       7S6,  793 

vs.  Russell  638 

Marshall  vs.  Bank  278,  721 

vs.  De  Cordova  744 

vs.  Levy  266 

vs.  Rice  869 

vs.  Thurston  538,  585 

Marston  vs.  Gould  255,  314 

xMarten  vs.  Gibbon  228,  425, 

573,  880 

Martin  vs.  Bo\\-ie  661 

vs.  Gross  781 

vs.  KuntzmuUer  792 

vs.  Moulton  366 

vs.  Peters  214 

Martineau  vs.  McCullum  699 

Marvel  vs.  Marvel  501 

Marvin  vs.  Brooks  316 

vs.  Buchanan  219 

vs.  Weeks  366 

Marye  vs.  Strouse       208,  209,  272, 

274,  360,376,411, 

429,  466 

Maryland     Fire    Ins.    Co.    vs. 

Dalrymple      193,   340,   353,   361, 

364,  383,  777 

Marysville   Bank   vs.   Brewing 

Co.  786 

Marzetti's  Ca.se  628 

Mason  vs.  Armitage  812,  813 

VH.  Decker  890,  893 

Masonic  Bank  vs.  Bangs  795 

M;i.s.soy  vs.  Allen  907 

.Ma.st^-rs  \H.  Ibbcrsoii  683 

.Mast^rson  vs.  liotts  46 

M.L'^ury  vs.  Bank  702 

.\Iatlu!\vs  vs.   Briggs  140 

.Mather,  Kx  part^'  4S3 

.Matl«T  of  Chandler      .549,609,  61S 
Matter  of  Da  vies  627 

Matter  of  B.  Htzsimmona  38 


Matter  of    Haobler   vs.  X.    Y. 

Produce   Exchange      16,  60,  61, 

64,  <>S,  88,  89,  96,  136 

Matter  of  J.  Fitzsininions  38 

Matter  of  Leiand  672 

Matter  of  Lurmau  84 

Matter  of  Renville   1 4,  20,  25,  31 ,  32 

Matter  of  Pierson         214,  290,  778 

Mattern  vs.  Sago  194,  785 

Matthew's    Est.  403 

Matthews  vs.  Associated  Press     67 

vs.  Coe  911 

vs.  Fuller  234 

vs.  Mass.  Nat.  Bank 

705,  734 

vs.  Warner  874 

Mattingly  vs.  Pcnnie  397 

vs.  Roach  397 

Maturin  vs.  Tredennick  366 

Maurer  vs.  King  59S 

Maury  vs.  Ingrahani  873 

Maxted  vs.  Morris  207,   210, 

432,    1012 

vs.  Paine  207,  210,  41 1,  424, 

429,  432,  987,  9S9,  990,  992, 

1000, 1008,  1020,  1021,  1031, 

10.33,  1035 

Maxton  vs.  Gheen      323,  325,  .560, 

566 

May    vs.  Angeli  469,  999 

vs.  Chapman  683 

Mayhew's  Ca.se  1020 

Maynard    vs.  Anderson  803 

vs.  Eaton  1021 

vs.  Pea.se  926 

Mayo  vs.  Knowlton     2.55,  366,  384, 

390,  775 

Mayor  vs.  Governor  726 

Mayor  of  London  \s.  Brandon  379, 

9.57 
McAllister  vs.  Kiilin  776 

McArfhur  vs.  Seaforth  913,  915 

McBlair  vs.  Gibbs  483 

.McBurncy  vs.  Martin  198,  779 

Mc(;abe   VH.  Emmoas  1.52,  l.W,  l.VJ 


xlvi 


Tabic  of  Cases. 


MrC'abe  vs.  Goodfcllow 
Mc'CiijiK  vs.  Woodiium 
McCalla  vs.  Clark  101, 

McCarthy  \-s.  Wcare  Commis- 
sion Co.  597, 
McCarty  vs.  Roots 
McClain  vs.  Flcshman  17S, 
Mc'Clcan   vs.  Stme 
McClernan  vs.  Hall 
Mc'Coml)  vs.  Wri^jiit 
Mc'Connell  \'s.  Apollo 
McCord  vs.  McCord  Ids. 
McCormick  vs.  Nicholls 
McDaniels  as.  Flower  Co. 
McDermid  vs.  Cotton 
McDevitt  vs.  Connolly  217,  3(i,S, 
McDonakl  vs.  Grant 
McDonnell  vs.  Trustees 
McDowell   vs.    Bank    of 

mington 
McEwen  vs.  Davis 

vs.  Woods 
McFadden  vs.  Goettert 
McGeoch  vs.  Hooker 
McGinnis  vs.  Smythe 
McGowen  vs.   Rcmina,ton 
McGrew  vs.  City  Produce  Ex- 
change   .39,  .507, 

vs.  McGregor 
McGuffin  vs.  Dinsmore 
McHenry  vs.  Jewett    248,  249, 
Mcllvaine  a's.  Egerton  491,  543, 
Mclntyre  vs.  Warren 
McKane  vs.  Gen.  Dem.  Comm. 
McKay  vs.  McKay 
McKay's  Ca.se 
McKenna,  Ex  parte 
McKcnnej'  vs.  Haines 
McKenzie  vs.  Nevins 
McKeon  vs.  Kearney 
McKinley  vs.  Williams 
McKinncl  vs.  Robinson 
McLaughlin  vs.  Barnard     314, 
McLelland  vs.  Norfolk 
McLoughlin  vs.  Erdlitz 


Wil- 
717, 

211, 


337 


49 
793 
2(iH 

890 
091 

201 
594 
751 

752 
IS 
ICO 
500 
250 
208 
821 
291 
IS 

791 
787 
220 
744 
212 
347 
830 

531 
548 

42 
2.50 
612 
770 

44 
391 
742 
802 
913 
805 

37 
926 
484 
396 
655 

55 


.McLure  vs.  Sherman  832,  891 

McMalion  vs.  Hauhr  42 

McNaughton  vs.  Haldeman         569 
McNeil   vs.   Tenth   Nat.   Bank 

192,  201,  .569,  682,  701, 
705,  706,   722,  72S,  729 
M((2uillen  vs.  Real  E.st.  Ex.  1  16 

Meaciiem  \s.  Stearns  397 

Meads  vs.  Mer.  Bank  692 

Meaker  vs.  Fiero  S(ll 

Mechanics'  Bank  vs.  Duncan 

508,  587 
vs.  N.    Y.    & 
N.       II. 
R.       R. 
Co. 
vs.  Seitz  7X 


etc, 


Seton 
Bank     \s. 


Mechanics', 

Crow 
Medewes'  Trust,  In  re 
Medical  Society  vs.  \\'eatheily 
Meehan  vs.   Forrester 

\'s.  Sharp 
Megibben  a's.  I'erin 
Melchert  vs.  American  U'.  Tel. 

Co. 
Mellott  vs.  Downing 

775 
Memphis  vs.  Bethel 
Memphis  &  Little  Rock  R.  R. 

Co.  \s.  \\'acker 
Memphis  Appeal  Pul).  Co.  vs. 

Pike 
Mendel  as.  Boyd 
Mendelsohn,  In  re 
Mercantile  Credit  .\.ssn. 
Merchant  vs.  O'Rourke 
Merchant     Banking     Co.     vs. 

Phcpnix  Bes.  Steel  Co. 
Merchants'  Bank  vs.     Livings- 
ton 718, 
vs.  Meyer  787 
vs.  Weill 


740 
794, 
SOI 
829 

692 
796 
6  1 
791 
499 
846 

535 
221. 
SIO 
8(i5 

907 

8.55 
601 
170 
102 
897 

671 

728 
801 
099 


Tablo  of  Cases. 


xlvii 


Merchant*;'  Xational  Bank  vs. 
Armstrong  624 

vs. 
HaU  664 

Merriam   vs.   Stock   Exchange 

524,  563 
Merrick  vs.  Butler  6S7 

Merrill  vs.  Farmers   Loan  and 

Trust  Co.  .393 

vs.  Garver  51.^,  601 

vs.  Mclntyre  49 

vs.  Norfolk  Bank  799 

Merry  vs.  Nickalls  992,  999 

vs.  Ochiltree  504 

Mer^vin  vs.  Hamilton  386,  3SS,  389, 

784,  785 

Metcalf  vs.  Bruin  52 

Metropolitan  Bank  vs.  Jansen     534 

Metropolitan  Co.  vs.  Scrinigeour  968 

Metropolitan    Grain     Ex.     vs. 

Chicago  Board  of  Trade      23,  25 
Mewburn  vs.  Eaton  229,  1010 

Me.\.  and  So.  Am.  Co.,  Re,  vs. 

Aston,  Re         402,  475,  476,  482 

Meyer,  In  re  787 

Meyer  vs.  Belden  780 

vs.  Blair  842 

vs.  Clark  513 

vs.  Muscatine  653 

vs.  Porter  053 

vs.  Richards  695 

Michael  vs.  Hart  420,  774,  911,  100s 

Mirhoud  vs.  Girod  37(> 

.Middlesex  Bank  vs.  Minot  383 

Mi.ldleton's  Ca.s«'  1.33 

.Mi.ilan.l  Railway  vs.  Taylor       729 

Mifflin  vs.   Bn)ok  322 

Miles  \s.  Andrews  500 

Milford  vs.  HiisrheH  Orti) 

Mili.r  vs.  Barber  904 

\s.  lienHley  501 

VH.  CV)ate.s  865 

vs.  Fanner's  Batik  7N(i 

VK.  Inx.    Co.    of    \(»rtli 

America  395,  129 


Miller  vs.  Kent  219,  768 

vs.  Murray  249 

vs.  Race  650,  667,  686 

Milliken  vs.  Dehon     306,  307,  337, 

338,  340,   342,  353, 

358 

Mills  vs.  Gould  513 

vs.  Hunt  752 

Milnes  vs.  Gery  135 

Milroy  vs.  Chicago,  M.  &  St.  P. 

Ry.  Co.  432 

MiuLS  vs.  West  682 

Miner  as.  Beekman  296 

Minier  vs.  Bank  790 

Minnesheimer  vs.  Doolittle  593 

Minnesota,  etc.,  Co.  vs.  White- 
breast,  etc.,  Co.  501 
Minor  vs.  Beveridge  232,  233 
Miashall  vs.  Arthur  778 
Minturn  \s.  Fisher  421 
Mississippi,  etc.,  R.  R.  Co.  vs. 

Cromwell  832 

Mitchell  vs.  Catchings  509 

vs.    City  of    Glasgow 

Bank     325,  488,  821 

vs.  Cockburn  483 

vs.  Harris  135 

vs.  Xewhall  190,  220,  222, 

424,  429,  986 

Mobile    Mutual    Insurance   Co. 

\'s.  Cullom  476 

.Mocatta  vs.  Bell  255,  257, 

766,  989 
Moeller  vs.  Mcl,a<j;.iii  335,  337 

Moffat  vs.  Far(iuli:ir  821 

.Monul  St<'amboat  Co.  vs.  Mc- 
Gregor 66 
Molir  vs.  Micsen  596 
Molii.c.  In  re  6,  379,  944,  9.59,  963 
.Moline  Prow  Co.  vs.  Carson  832 
Moilett  vs.  Robin-son  172.  7()1 
Mon.arch  Co.,  Re  96S 
Moticiirr  vs.  Dermott  8()5 
Monk  \s.  (irali.-im  729,  777 
I  .M(>nr(»e  vs.  Peck                             316 


xlvm 


Tiihlc  of  ('asps. 


Monroe  vs.  Smolly  .518 

Moody  vs.  Bank  705 

Moon  \s.  Guardians  Ii02 

Moore  v.s.  .Vnicrican     Loan     it 

Trust  Co.  294 

vs.  Battle  864 

vs.  lirink  31 

vs.  Burke  023 

vs.  Metropolitan       Xat. 

Bank       G9,S,  099,  705, 

707,  722 

vs.  Vance  873 

vs.  Vosbur^h  897 

vs.  Voughton  274,  430 

vs.  Woodworth  865 

Moorehouse  \s.  Crangle  897 

Morehead   vs.   Western   Xortli 

Carolina  R.  R.  Co.  855 

Morgan,  In  re  541 

Morgan's  Estate  245 

Morgan  as.  Congdon  806 

vs.  Jaudon  192 

vs.  Lathrop  787 

vs.  Mason  395 

vs.    Mechanics',      etc., 

Banking  .\ssoc.      873 
vs.  Pebrer  480,  517 

vs.  Richards  524 

vs.  Skiddy  624 

vs.  Smith   Am.    Organ 

Co.  099 

vs.  United  States  689 

vs.  Worthington  899 

Morley  vs.  Morley  242 

Mornyer  vs.  Cooper  683 

Morrice  vs.  Hunter  220,  225 

Morrill  vs.  Cooper  899 

Morris  vs.  Cannan  476,  1044 

vs.  Dixon    National 

Bank  501 

vs.  Grant  130, 

132,  381 
vs.  Jamieson  328,411 

A's.  Norton  503 

vs.  Telegraph  Co.  526 


Morris  Canal  ct  Banking  Co.  vs. 

Fisher  (')53 

vs.  Lewis  347,  348,  653 

Morris  Run  Coal  Co.  vs.  Bar- 
clay Coal  Co.  634,  638,  639 
Morrison  vs.  Glover  113 
Morrissey  vs.  Bromai  601 
Morse  vs.  Swits  623 
Mortimer  vs.  McCallan  424,  ISl, 
612,  784,  995,  102S 
Morton  vs.  Burn  691 
vs.  Timken  852 
Mosier  vs.  Norton  872 
Mosse  vs.  Salt  798 
Moss,  In  re  781 
Moss  vs.  Exchange  Bank  504,  530 
Mott  vs.  Clark  699 
Mould     vs.     Importers',     etc., 

Bank  291 

Moulton  AS.  Warren  Manufac- 
turing Co.  836 
Mount  Holly  Turnpike  Co.  vs. 

Terrel  705' 

Mountford  vs.  Scott  795 

Mount  Sterling  Bank  vs.  Green  787 
Moxey's  Appeal         48,  60,  91,  107, 

IIS 
Moxey  vs.  Philadelphia  Stock 

Exchange       48,  60,  91, 107,  1  IS 
Muench  vs.  Bank  780 

Mulcah}'  vs.  Emigrant  Indus- 
trial Savings  Bank  322 
Mulford  vs.  Caeser  596 
Muller  vs.  Legerdre               259,  785 
vs.  Pondir  687 
Mulligan,  In  re  293 
Mulroy  AS.  Lodge  64 
Mulviilo  VS.  Bank                           278 
Muniff)rd  vs.  Insurance  Co.  865,  870 
Mundorff  vsi  Wickersham            719 
Mundy  a's.  Davis                          832 
Municipal   Ins.  Co.  vs.  Indus- 
trial &  Gen.  Trust  Co.    414,  416, 

465 
Munn  vs.  Barnum  390 


Table  of  Cases. 


xlix 


Munn  vs.  Illinois  22,  23 

Munnerlyn  vs.  Bank  799 

Mumis  vs.   Donovan  Commis- 
sion Co.  oOl 
Murdock    vs.  Bank  7S7 
vs.  Philips  .Vcadeiny 

97,  lOS 
Murphy  vs.  Chicago  Board  of 

Trade  22 

Murray  vs.  Balou  OSl 

vs.  Doud  213 

vs.  Hewitt       774,  922,1007 

vs.  Lardner     (352,  653,  6S6 

vs.  Pate  911 

vs.  Pinkett  798,  799 

vs.  Stanton  911 

vs.  Stevens  849,  853 

Musgrave  vs.  Beckendorff  903,  913 

Musgrave's  Case  828 

Mus.sell  vs.  Cooke  877,  886,  899 

Mutton  vs.  Peat  290,  773 

Mutual  Life  Ins.  Co.  vs.  Watson  585 

Myer  vs.  Periijal  881 

Myers  vs.  Paine  203,  398,  406,  773 

vs.  Tobias  569 

N. 

Narhring  vs.  Bank  of  .Mohiio      770 
Nash  vs.  Bryant  772 

Xa.shua  Bank  vs.  .Vhbott     155,  150. 

169 

National  Bank  vs.  .Mloii  219 

vs.  Caldwell         921 

vs.  Case  26() 

vs.  Conn.  .Mut. 

L.  IriH.Co.  7S6 
vs.  fionnloy  792 
vs.  Kirljy  Oss 

V8.  La.sh(T  42 

vs.  Ix'wis  S72 

vs.  Peek     7s7,  795 
vs.  Sinifli  793 

VB.  Spc'iuht  795 

vs.  VariDcr- 

wcrkor  42.    14 


National    Coffee     Palace   Co., 

In  re  302 

National    Tel.    News    Co.    vs. 

Western  Union  26 

Nauman  vs.  Caldwell  921 

NaAe  vs.  Wilson  547 

Neely  vs.  Rood  799 

Neiler  vs.  Kelly  777 

Neill  vs.  Rogers  787 

Neilson,  Ex  parte         467,  470,  475, 
496,  967 
Neilson  vs.   James   247.   269,   300, 
472,488,  773 
Neimann,  In  re  159 

Nellis  vs.  Clark  687 

Nelson  vs.  Board  of  Trade     16,  62, 
64,  71,  fK),  109 
Neponset  Bank  vs.  Leland  795 

Nesbitt  vs.  Helser  207 

Nester  vs.  Craig  216 

Neukirch  vs.  Keppler  75,  97 

Newbery  vs.  Garland  624 

Newbold  vs.  Patrick  792 

New  Brunswick  Co.   vs.   Mug- 

geridge  812,  817,  828 

Newcojnb  vs.  Ahny  792 

vs.  R.  R.  Co.         275,  294 
.\ewoll  vs.  Gregg  688 

Newman  vs.  Lee  220,  428 

-Newport,  etc.,  vs.  Douglas  .381 

-Newton   vs.  Bronson  393 

vs.  Cribbes  1(M).S 

vs.  Wilson  S()3 

.New  York  vs.  Whipple  42 

-New    York,    etc..    Stock     Ex- 
change  vs.    Board   of  Trade 

)6,   22,   21,    26 

-Nichols,  Matter  of  1.59 

vs.  B.irdwell  50 

vs.  Kafoii  1.53 

vs.  Lumpkin  ,5S,S 

vs.  St.ile  SOI 

.\ichoUf)ti,  .V.ssigiice,  \'s.  (ioiich  11.5, 

IS6.  9.S(),  992 

Niekalls  vs.  Katoii  1012.  1021 


1 


Table  of  Cases. 


Nickiills  vs.  Mcrrv     IJl,   TCI,  U)V2. 

101  1,   1  ()•_"_',  102") 

Nicoll  vs.  .\iiic.s  17S 

vs.  Hurko  755 

\  s.  Munii  1- 

Nightiuiiiilc  vs.  Devisnic  10 

Nims  vs.  Vaughn  845 

Nolans  vs.  Clarke  529 

Nonmapietic    Watch    Co.    of 

America,  In  re  7S7 

Norris  vs.  Irish  Land  Co.    S5(),  85r) 

North  vs.  Forest  SS5,  S8S,  S9  1 

vs.  Phillips       196,  203,  5(11, 

o()(),  ()}(),  902,  909,  929 

Northern  Central  R.  R.  Co.  vs. 

Walworth  847 

Northern    National    Bank    vs. 

Arnold  524 

Northrup  vs.  Buffinnton       .549,  582 

vs.  Shook  177,  188 

Norton,  Ex  parte  772 

Norton  vs.  Blinn  503 

Nourse  vs.  Prime       245,  253,  254, 

425,  428,  433,  445,  871,  876 

Noyes,  Matter  of  168,  169 

Noves  vs.  Marsh  835,  842 

vs.  Spauldin,^  475,  479,  612 

Nntbrown  vs.  Thornton     812,  815, 

825 
Nuttini!;  vs.  Thomason  716 

N.  Y.  it  New  Haven  R.  R.  Co. 

vs.  Schuyler     705,  738,  739,  740 
N.  Y.,  etc..  Stock  Ex.  vs.  Mel- 

len  500,  531 

N.  Y.,  L.  E.  <t  W.  R.  Co.  vs. 

Davies  259,  276 

N.  Y.  MarI)lo(l  Iron  \\'()rks  vs. 

Smith  46 

N.    Y.     Protective    Assn.    vs. 
McGrath  103 


Oakley  vs.  Rip;by  479 

Gates  vs.  Nat.  Bank  691 

Oatinan  vs.  Batavian  Bank        792 


O'Brien  \s.  Luques  525 

O'Connor  vs.  Irvine  837 

vs.  Mechanics'  liaiik  S03 
O'Calla^han  vs.  Sawyer  687 

O'Connell  vs.  Lamb  51 

Odes.s:i  vs.  Mendel  817,  828 

Odell  vs.  Gray  651 

O'Donofihoe  vs.  Lejisett      411,  416 
Oelricks  vs.  Ford  334,  336,  465 

Oj^den  vs.  Lathrop        259,  348,  363 
Ohio  Ry.  Co.  vs.  People  849 

Oidershaw  vs.  Knowles      220,  409, 

785 
Oldham  vs.  Ramsden  552 

Olds    vs.    Chicago     Board    of 

Trade  108,  126 

Olery  vs.  Brown  16,  99,  104 

Olipiiant  vs.  Markham  511,  512 

Oliver  vs.  Bank  of  England         732 
Olivierson  vs.  Coles  480 

O'Meara   vs.    North    American 

Min.  Co.  843 

O'Neill  vs.  Sinclair  176 

vs.  Wchl)  847 

vs.  Whigham  190,350 

Ontario  Bank  vs.  Mumford         658 

Opinion   of   Attorney   General 

of  Pcnna.  174 

Oppenheim  vs.  Waterhury  237 

Orange  &  A.  R.  R.  vs.  Fvdijerg  903 
Orchard  vs.  School  District  865 
Oregon  ct  Trans.  Co.  vs.  Kil- 
mers 259,  426,  435,  451 
Oriental  Co.  vs.  Briggs  816,  825 
Orleans  vs.  Piatt  682 
Ormerod's  Case  968 
Ormond,  Lady,  vs.  Hutchinson 

768 
Ormsl)y    vs.    Vermont   Copper 

Mining  Co.  911 

Orr  vs.  Bigelow  905 

Orvis  vs.  Curtiss  323,  861 

vs.  Wells,  Fargo  &  Co.      758 
Osgood  AS.  Bander  500,  504 

O'Sullivan  vs.  Thomas  556 


Table  of  Cases. 


U 


Otis  vs.  Cullum 

2lV) 

6;  1.5 

Otto  vs.  Union 

64,  69,  74 

,90, 

91, 

lOS 

Ottos  Mines,  In  re 

732, 

907 

Overend  Gurney  Co.. 

In  re 

828 

Overman    vs.     Hoboken    City 

Bank 

411 

Overseers    of    Poor 

^•s.    State 

Bank 

799 

Overwej:,  In  re 

387, 

414 

Owen  vs.  Davis 

577 

vs.  Ramsay 

400 

vs.  Routh 

913, 

927 

Owens  vs.  Missionar> 

Society 

37 

Owl   Canon    Gypsum 

Co.    vs. 

Ferguson 

397 

Owsley  vs.  Bank 

801, 

802 

Page  vs.  Board  of  Trade         62,  63 

vs.  Edmunds  159 

vs.  Fowler  930 

vs.  Shainwald  312 

Paine   vs.  Hutchinson        825,  827, 

999,  1028,  1043 

vs.  Loeb  382,  760 

Palmer  vs.  Hussey  779,  781 

vs.  Palmer  767 

vs.  Yates  (i99 

Palmetto  Lodge  vs.  Hubbell         83 

Pancoast  vs.  Gowen      48,  147,  148 

vs.  Houston  147 

Panmure,  E.\  parte      217,  225,  OK) 

Parinell  vs.  Hurley  7(J9 

Pardee  vs.  Fish  672 

Pardridge  vs.  Cutler     430.  .501,  585 

Parish  vs.  .\.  V.  Produce  Ex. 

71,  117,  165 

Park  v.s.  Musgrave  336,  772 

VH.  .SimmotiH  40 

Park  Bank  v.s.  Watw.n  686 

Parker  vs.  Gale  7Sl 

vs.  McQuesten  ()24 

VH.  Moore  .505,  506 

VH.  Otia  5(J7,  .598 


Par  ker  \  s.  Ranishottoni      864,  865 
Parmalee  as.  Lawrence  863 

Pa.  R.  R.  Co.'s  Appeal  723,  726,  727 
Parrot  vs.  Thatcher  432 

Parsons  vs.  Martin  257,  298, 

414,  460,  779 
Partlow  vs.  Williams  869 

Partridge  vs.  Bank  of  England 

656,  670 

vs.  Forsyth  432 

vs.  Ins.  Co.  665 

Pasley  vs.  Freeman  623 

Paterson  vs.  Powell  476,  480 

Paton  vs.  Newman  220,  750 

Patterson's  Appeal  548 

Patterson  vs.  Keys  220 

vs.  Powell  476,  488 

Pawle  vs.  Gunn  883,  890 

Payne,  Ex  parte  143 

Payne  \s.  Elliott  776 

Peabody  as.  Eastern  Methodist 

Soc.  37 

vs.  Speyei-s  428,  513, 

543,  890 

Peacock  vs.  Rhodes  68(i 

Pearce  vs.  Dill  523 

vs.  Foote  203,  500,  530 

vs.  Rice  501 

Pearse  vs.  Green  768 

Pearson   vs.    Scott    l.").s,    I6(),   705, 

710, 1007 

Pea.sc,  Ex  parte  795 

Peckham  vs.  Kct.luini         220.  223 

Peck  vs.  Bank  790 

vs.  Doran  A:  Wright  Co.     .589 

Redder  vs.  Preston  797 

Peek  vs.  Derry  901 

vs.  Gurney  623 

Peet  vs.  Hatcher  532 

Pender  vs.  Fox  1024 

vs.  Lushington  821 

Peiidinton  vs.  Smi.ssacrf  .'>32 

Pennell  vs.  .Mcxaiidcr  111,  7()l 

vs.  DcfT.-ll  79.S 

PcniiNylvuniu  Co.  vs.  Franklin  720 


Hi 


Table  of  Cases. 


Pennsylvania  R.   R.  Co's.  Ajv 

peal  723,  724,  72G,  727 

Pennsylvania    R.    i{.    Co.    \s. 

Penn.  Co.  250 

People   vs.  .\m.   Inst.  109 

vs.  Board  of  Trade  (1) 

62,  G-.i 
vs.  Board  of  Trade  (2) 

16,  60,  62,  63 
vs.  Chicago  Live  Stock 

Ex.  60,  67,  6S 

vs.  City  of  Rochester      295 
vs.  Coleman    (1)  362 

vs.  Coleman  (2)     29,31,60 
vs.  Co.  855 

vs.  Crockett  856 

vs.  Feitner  (1)   14,  20,  21, 
29,  158,  162,  163,  164 
vs.  Feitner  (2)  180 

vs.  Fire  Underwriters       67 
vs.  Garrahan  625 

vs.  Goslin  625,  627 

vs.  Institute  109 

vs.  Karste  221 

vs.  Mechanics'         Aid 

Soc.  109 

vs.  Med.  Soc.  of  Erie      59, 
62,  109,  111 
vs.  Metropolitan  R.  R. 

Co.  850,  856 

vs.  Milk  Ex.  67,  68,  618 
vs.  Miller  16,114,128,853 
vs.  Musical  Union  95,  96, 
105,  111 
vs.  Mutual  Trust  Co.  17 
vs.  X.  v.  Ben.  Soc.  109, 
111 
vs.  X.   Y.   Commercial 

As.sn.  74,  80,  88,  89,  97 
vs.  N.   Y.   Cotton   Ex. 

80,  89,  109,   110,   111. 
1.33,   137,   142 
vs.  Olmstead  46 

vs.  Parker    Vein    Coal 

Co.  852 


People  \s.  Produce  Ex.  60,  OS,  71, 

88,  89,  90,  91,  95,  96, 

105,  106,   109 

vs.  Powers  38 

vs.  Putnam  625 

vs.  The     St.     George's 

Soc.  of  Detroit       106 
vs.  San  Franciscus 

Benev,  Soc.      95,  111 
vs.  Sheldon  67 

vs.  Society  64,  109 

vs.  Sugar  Refining 

Co.  641 

vs.  Thomas  200 

vs.  Todd  521,  607 

AS.  Union  64 

vs.  Wade  .507,  519,  521,  607 

vs.  Wemple     29,  31,  69,  70 

Peoples'  Bank  vs.  Legrand  794 

vs.  McKurty        225 

Peoples'     Savings     Bank     vs. 

Gifford  505 

Peppercorne  vs.  Cicncli  1012,  1022 
Perin  vs.  Parker  22S,  335,337,340, 
345,  350,  426,  785 
Perkins  vs.  Smitli  860 

Perring  vs.  Hone  42 

Perryman  vs.  Wolffc  532 

Perry  vs.  Barnett        473,  488,  785 
vs.  Hale  624 

Perth  Amboy  Mut.  l^oan  Assn. 

vs.  Chapman  686 

Peters  vs.  E<1  wards  365 

vs.  Grim  198,  569 

vs.  Mortimer  874 

Peterson  vs.  Currier  501 

vs.  Hall  805 

Petillon  vs.  Hippie  772 

Petre  vs.  Sutherland  380 

Petrie  vs.  Clark  694 

vs.  Hanney  483,  577 

Pettamberdas  vs.  Thackoorsey- 

dass  617 

Pettpo  vs.  Prout  686 

Phelps  vs.  Holderness  506 


Table  of  Cases. 


lin 


Phelps  vs.  Riley  S73 

Phen6  vs.  Gillan  260 

Phila.  Nat.  Bank  vs.  Smith         785 

Philes  vs.  Hickies  845 

Phillip's  Appeal  913 

Phillips,  Ex  parte  260, 

519,  541,  612 

Phillips  vs.  Belden  771 

vs.  Berger  836 

vs.  Gifford  516 

vs.  Jones  58,  387 

vs.  Mason  865 

vs.  Moir  220 

Pickard  vs.  Sears  732 

Picker  v.s.  London  and  County 

Bankinji  Co.  446,  650,  655 

Pickering  vs.  Appleby  876,  886 

vs.  Cease     500,  585,  608, 

612,  636,  646 

vs.  Demeritt       208,  366, 

375,  384,  462,  464 

Pidgeon  vs.  Burslem  963 

Pierson,  Matter  of        214,  290,  778 

Pierson  vs.  Scott  775 

Pigott  V.S.  Cubley  337,  349,  383 

vs.  Thompson  52 

Pike  VS.  J.edwell  868,  869 

Pim  vs.  Wait  214 

Pinch  vs.  ,\nthon}'  58 

Pinkerton  vs.  Manchester,  etc., 

R.  Co.  8.52,  907 

Pinkett  vs.  Wright  819 

Pinney  vs.  WelLs  806 

Pitcher  vs.  Board  of  Trader  of 

Cliicago  ()2,  90,   108 

Pitt  vs.  HoliiH.-H  6.56,  6.57 

Pittsburgh  Bank  vh.  Neal  fisC) 

Pittsburgh,  etc.,  Co.  vs.  Lyndc 

682,  686 
Kxdiaiigc, 

19 

203,  501,.'->J5, 

612,  6.3() 

523, 517 

51 


Pittsburgh     Stock 

In  rf; 
Pixley  VH.  lioynfon 

Plnnk  vs.  Jack.soM 
Plant  vs.  UickcrHon 


Piatt  \s.  Baldwin  400 

vs.  Jones      151,  155,  158,  159 
vs.  Machinists'  Nut. 

Bank  725 

vs.  Taunton  Copper  Mfg. 

Co.  725 

Player  vs.  .\rcher  133 

Pluml)  vs.  Campbell  516 

Plumbly,  In  re     122,  123,  12(1,  9S0 

Poindexter  vs.  Davis  402 

Pollock  vs.  Nat.  Bank        725,  726, 

729,  842 

vs.  Stables      220,  424,  429, 

442,  9S6 

Ponder  vs.  Jerome  Hill  Cotton 

Co.  507 

Pontifex  vs.  Bignold  623 

Poole  vs.  Middleton  819,  828 

Pope  vs.  Hanke  500 

Porter  vs.  Massengale  504 

AS.  Parks  719 

vs.  Pittsburgh  Steel  Co.  683 

vs.  Viets  607,  612,  646 

vs.  Woodruff  36() 

vs.  Wormsor    201,  .302,  .305, 

3.59,  366,  3r)7.  .3S2, 

770,  896,  900 

Post  vs.  Leland  52! 

Postal  Telegraph  Calile  Co.  vs. 

Lathrop 
Pott  vs.  Flather 
Potter  vs.  Thompson 
Potts    vs.  Aeciitoriiacht 
vs.  Dunlop 
vs.  Mayer 
Powell    \'s.  Abl)ott 
vs.  Dunn 
vs.  Jessop 
vs.  McCord 
vs.  Tnistees     Vil. 

N«!wbiirgh 
vs.  W.'ildron      1,52, 
I'owncy  \s.  Ml()ml)crg 
Prall  vs.  Ii;(iiiil 

vs.  Tilt  ir>3, 


.502 

902, 

909 

339 

319 

395 

548 

()92 

84 

107 

48 

882, 

903 

.500, 

5S5 

..f 

7SI 

1."). 

I.5S 

S(J5 

71  1. 

715 

706, 

711 

llv 


TaUlo  of  Tnsos. 


Pratt    vs.  Adfims  .S7;i 

vs.  Ainerican   liill    Tele- 
phone Co.  41)9 
vs.  Boody                           51);} 
vs.  Coinan  692 
v.s.  Mtifhiiiist's         Nat. 

Bank         729,  730,  737 
vs.  Taunton         Copper 

Mfg.  Co.  720,  728,  729, 
730,  737 
Pray  vs.  Mitehell  888 

Preacliers'  Aid  Society  vs.  Hieh     37 
Prentice  vs.  London  1  U,  142 

Prentiss  vs.  Press  oOl 

Prescott  vs.  De  Forest  72() 

President,   etc.,   Del.  etc.,  Co. 

vs.  Pa.  Coal  Co.  136 

Press  vs.  Duncan  .504 

Preston   vs.   Cincinnati,   C.    & 

H.  V.  R.  Co.  503 

Price,  Matter  of  277 

Price  vs.  Cover  201,  252,  255 

vs.  Minot  494,  497 

Prince  vs.  Robinson  330,  387 

Printing  Co.  vs.  Washburn         705 
Prioleau     vs.      South     W.    R. 

Bank  658 

Pritchett  vs.  Smart  482 

Proctor  vs.  Brain  379,  559,  959 

Prosser  vs.  First  National  Bank  624 
Prout  vs.  Chisolm     206,  207,  213, 
214,    218,    219,    306,   398,    409, 

775 
Pryce,  In  re  1002 

Public  Grain  &  Stock  Exchange 

^•s. ^Western  ITnion  Tel.  Co.       22 
Pugh  vs.  Moore  695,  760 

Pullen  vs.  Snelus  899 

Pullman  vs.  Upton  266 

Pulsifer  vs.  Shephard  298 

Purchase  vs.  Bank  842 

Purdy  vs.  Sistare  296 

Pursifull  vs.  Pineville  Banking 

Co.  794 

Pyke,  Ex  parte  552 


a.  ♦ 

(Juackenbos  vs.  Sayre  863,  865 

Quaries  vs.  State  516 

(^ueen    vs.    Shropsliire     riiion 

Railways  ,SI9 

Queensland  Co.  vs.  O'Connell    1022 

Quincey  vs.  White      139,  321,  .363, 

366,  .380,  381,640,770 

Quinlan  vs.  Raymond         233,  347, 

.36.5,  .399,  927 

R. 

Rabone  ^s.  Williams  709 

Rafferty  \s.   Buffalo  City  Gas 

Co.  "  627 

Railroad  Co.   vs.  Benedict  889 

vs.  ICchtcrnacht 

835,  840 
vs.  Schutte     651,  696 
Rainey  ^■s.  Laing  36 

RamloU   Thackcoorseydass  vs. 

Soojumnull  Dhondmull  480 

Randall  vs.  Bank  935 

Randon  vs.  Barton  902,  903 

Rand   vs.  Whipple  214 

vs.  White  Mountain  R. 


R. 


902, 
296, 


Rankin  vs.  McCullough 
Rapalje  vs.  Nors worthy 
Rasch  vs.  His  Creditors 
Ratcliffe  vs.  Mendelsohn      445, 
Rathbon  vs.  Budlong 
Rawle  vs.  Gunn 
Rawlings  vs.  Hall      403,  417, 
482,  485, 
Raj^mond  vs.  Colton 

vs.  Lcavitt  616,  617, 
628,  6.33,  634, 
vs.  Palmer 
Read  vs.  .\nderson       211,  552, 
vs.  Jaudon 

vs.  Lambert  '  192, 

776, 
Reading  vs.  Porter 
Real  Estate  Trust  Co.  vs.  Bird 


909 

3.58 
397 
336 
470 
751 
890 
477, 
647 
895 
618, 
635 
803 
.556 
322 
347, 
778 
6.53 
706 


Table  of  Cases. 


U 


Ream  vs.  Hamilton  r)94 

Redding  vs.  Godwin  904 

Redmond  vs.  Bedford  138 

Red  Polled  Club  vs.  Red  Polleii 

Club  5S 

Reed  vs.  Copeland  SS.'S 

Rees  vs.  Fernie  .")1<).  (i44,  772 

vs.  Fellow  211 

Reese  vs.  Rutherford  272 

Reeside,  The  605 

Ref.    Ch.    of    Gallupville    vs. 

Schoolcraft  37 

Reg    vs.  Aspinall  620,  644 

vs.  Brown  624 

vs.  Carnatie  Ry.  851 

vs.  Charnwood  Ry.  Co.     851 
vs.  Esdaile  622,    624 

vs.  Midland  Ry.  Co.  856 

vs.  Shropshire      W.      R. 

Co.  851 

vs.  Whitmarsh  29 

Reggio  vs.  Stevens  &  Co.  555 

Reilly  vs.  Freeman  320 

Reitenbaugh  vs.  Ludwick  928 

Remfry  vs.  Butler  220 

Renner  vs.  Bank  of  Columbia     421 
Rermie  vs.  Morris  992,  1023 

Renville,  Matter  of  14,  20,  25, 

31,  32 

Repplier  vs.  Jacobs  509 

Rex  vs.  Comrs.  Ct.  of  Requests  900 

vs.  Gurney  020 

vs.  London  .Assurance  Co.  850 

vs.  Mott  ()2() 

vs.  Norris  020 

vs.  Richard.son  10s 

vs.  Wafldington  OlS 

Reynes  vs.  Dumont  780,  795 

Reynolds  vs.  Boland  835,  83«j 

vs.  .\eal  803 

vs.  Plumbers'  Assn.       17 

vs.  Scriber  836,  894 

Rhea  vs.  Rhiner  881 

Rhinr-landcr  vh.  Bank  2<M 

UhcMlfrM  VH.  Fuli(!Mwid«T  873 


Rice  vs.  Board  of  Trade  10,  00, 


195, 


vs.  Davis 
vs.  Gist 
vs.  Winslow 
Rich  vs.  Boyce 
Richards   vs.  La  Tourette 

vs.  Warring 
Richardson  vs.  Dickinson 
vs.  Emmet t 
vs.  International 

Bank 
vs.  Mann 
vs.  Mining  Co. 
vs.  Sewing        Ma- 
chine Co. 
vs.  Storment,  Todd 
&  Co. 
Riebe  vs.  Hellman        439,  ,501, 
Rigg  vs.  Railway  Co. 
Riggs  vs.  Magruder 

vs.  Pennsylvania,     etc., 
R.  R.  Co. 
Righter  vs.  Philadelphia  Ware- 
house Co. 
Riley  vs.  Schawacker 
Rimmer  vs.  ^^'ehster 
Rindskoff  vs.  Barrett 
Ringler  vs.  Jetter 
Riordon  vs.  Doty 
Ritter  vs.  Cushman 
Ritterband  as.  Baggett 
Rivara  vs.  Ghio 
Rivers  vs.  P'ame 
Roach  vs.  Duckworth 
Ko.inoka     St.     Ry.     Co 

Ili.ks 
Hobliins  \<.  Butler 
vs.  Dillaye 
vs.  Iv  I  wards 
vs.  Wells 
Roberts   vs.  Berdell 
vs.  Croft 
VH.   Hail 
vs.  LaiH? 


192, 
146, 


vs. 


868, 


296. 


02. 

63 
400 
529 
521 
291 
792 
661 

58 
720 

802 
383 
853 

913 

469 
585 
834 
889 

681 

872 
683 
216 
673 
838 
505 
33() 
152 
806 
49 
382 

836 
30 
873 
2()6 
53 
913 
800 
602 
683 


Ivi 


Table  <>f  Cases. 


llobcrts  vs.  Sykes  2*»0 

vs.  Trenayiu'  SOI,  S()S 

Robertson  vs.  lletTar  977 

Robins  v.>^.  Edwards  210,  2()t) 

Robinson  vs.  Bohvinn  Co.  21 C) 

vs.  Cliartored  Bank     S20 

vs.  Crawford        346,  431 

vs.  Frost  70.5 

vs.  Hurley  34S, 

350,  910 

vs.  Jenkins  211 

vs.  Kitc'hin  957 

vs.  Mearas  517 

vs.  Mollett  360,  374,  3.82, 

411,  421,  422,  424, 

425,  430,  404,  471, 

472,  916,  970,  995 

vs.  Norris  271,  307, 

309,  872 

vs.  X.  Y.  and  Texas 

S.  S.  Co.  410 

Robson  vs.  Fallowes  479 

Roche  vs.  Day  501 

Rock  vs.  Nichols  494,  490 

Rockwell  vs.  Charles  809 

Rockwood  vs.  Oakfield  591 

Rogers,  Ex  parte  488,  552,  555,  572, 

999 

Rogers  vs.  Burr  889 

vs.  Corre  503 

vs.  Edmund  503 

vs.  Gould         255,  883,  890 

vs.  Marriott  001 

vs.  Van  Xortwick  830 

vs.  Walsh  095 

vs.  Wiley    326,    350,    424, 

434,  917 

Romaine  vs.  Van  Allen  921 

Rommel  vs.  Coal  Co.  835,  830 

Roome  vs.  Swan  154,  155 

Roosevelt  vs.  Roosevelt  393 

Root  vs.  Merriam  525,  710,  755 

Roots  vs.  Williamson  716,  755 

Rorke  vs.  Russell  41,  43,  45,  40,  59, 

80,  107 


Hoikc  \s.  San  Francisco  Stock 
Exchange     lioard 

49,  115 

Ro.se  vs.  Dick.son  S05,  872 

Kosenberg  \s.  Meyer  203 

Rosenfeld  vs.  Einstein  853 

Kosenstock  vs.  Tormey      210,  213, 

356,  361,  388,  389,  392,  425 

Rosewarne  vs.  Billing         220,  552, 

555,  572 

Roshi's  Appeal  110 

Ross  vs.  Union  Pac.  R.  R.         811, 

812,829,830,  833 

Rothschild  vs.  Allen  255,  356 

vs.  Brookman  768 

Roulstone  vs.  Moore  523 

Roundtree  vs.  Smith  577 

Rourke  vs.  Elk  Drug  Co.  627 

vs.  Short  585 

Row  vs.  Dawson  658 

Rowe  vs.  Guillaume  781 

vs.  Stevens  400 

Rowley  vs.  Swift  311 

Rowley's  Appeal  843 

Royal  Ex.  Ins.   Co.    vs.  Moore 

267,  7.58,  763 

Rozet  vs.  McClellan  275 

Rubino  vs.  Scott  395 

Kuchizky  vs.  De  Haven    407,  563, 

566,  569 

Rudgo  AS.  Bowman  476 

Rudolf  vs.  Winters       008,  014,  046 

Rued  vs.  Cooper  507,  598 

Rugg  vs.  Davis  300 

Ruinball  vs.  Bank      278,  446,  651, 

663,  670,  072,  705,  721 

Rumsey  vs.  Berry         544,  012,  044 

vs.  Ry.  Co.  847 

Russell  vs.  Bos  worth  674 

vs.  Hadduck  787 

vs.  X.  Y.  Produce  Ex. 

20,  01,  06 

Russell's  Arbitrator  135 

Ryan   vs.  Cudahy       62,  63,  68,  90, 

139,  335 


Table  of  Cases. 


Ryiiii    vs.  Laiuson 
vs.  McLane 
vs.  Seaboard 
Co. 
Ryder  vs.  Sistare 
Ryers  vs.  Tuska 
Ryman  vs.  Gerlach 

s. 


62 
833 

et    R.    R. 

846 
29S,  323,  773 
750,  7->3,  891 
394,  459,  463 


380, 


138, 


Sachs  vs.  Spielmau 

Sadd  vs.  Foster 

Sadler  vs.  Lee 

SafFrey,  Ex  parte 

Saffrey  vs.  Mayer 

St.  James's  Club 

St.  Laurence  Steamboat    Co., 

In  re 
St.  Louis,  etc.,  vs.  Wilson 
St.  Paul  Third  Xat.  Bank  vs. 

Stillwater  Gas  Co. 
Salaman  vs.  Warner     624,  630, 
Salisbury   Mills   vs.   Townsend 
726,  729, 
Saltsman  vs.  Shults 
Saltus  vs.  Genin  201,  255,  365, 
Sampson   vs.  Camperdown 
Cotton  Mills 
vs.  Shaw  632, 

Samuel  vs.  Rowe  774,  922,  1 
Samuels  vs.  Oliver  400, 429, 500, 
Sanborn  vs.  lienedict  501, 

Sander  vs.  Eidlen 
Sanderson  \s.  liell  800, 

Sandford  vs.  Supervisors  29,  31 
San  Franci.sco  vs.  .\nderson 

vs.  WannenlH'im 
Sargent    vs.  Franklin  Ins.  Co. 
vs.  Kaasas      Midland 
R.  R.  Co. 
Saunders   vs.  Kentish  4K0,  ISl, 

vs.  Phelps  Co. 
Savanniih  «t  Charlofiton  R.   R. 

Co.  vs.  Callahan 
Savannah  Cotton  Kx.  vs.  Stat<» 
01,  IIU,  111, 


968 
603 
243 
978 
556 
33 

250 
832 

799 
632 

737 

42 

776 

505 
647 
008 
645 
612 
42 
807 
.  69 
164 
164 
494 

S33 
!H4 
505 

907 

134 


Sawyer  vs.  Gruner  100,  132,  140 

vs.  Langford  481 

vs.  Taggert  531,  582,  645 

Sayles  vs.  Blane  827,  1035 


249 
799 
832 
501 
806 
316 


Co. 


vs.  Brown 
Sayre  vs.  Weil 
Sayward  vs.  Houghton 
Scanlon  vs.  Warren 
Scarfe  vs.  Morgan 
Schantz  vs.  Oaknian 
Schenectady     R.     R 

Thatcher 
Schepeler  vs.  Eisner 
Schermerhorn  vs.  Tahnan 
Scheu  vs.  Grand  Lodge 
Schiller  vs.  Jaennichen 
Schlee  vs.  Guckenheimer 
Schmidt  vs.  Gunther 
Sclimiieckle  vs.  Waters 
Schneider  vs.  Turner  501,  502,  611, 
614,  616 
Scholey  vs.  Mumford  279 

Scholfield  vs.  Union  Bank  250 

Schreiner  vs.  Orr  59!) 

Schuler  vs.  Laclede  Bank  786,801 


vs. 

269 

192,  362,  785 

871 

95 

58 

501 

41,  46 

587 


Schwa  rt 

1.  vs.  Weckler 

53 

Scofield 

vs.  Blackinan 

4()0 

vs.  McXaught 

873 

Scollans 

vs.  Rollins 

432, 

440, 

651, 

673 

Scott  vs. 

Avery 

118 

140 

vs. 

Brown  432,  .59(), 

625, 

62S 

vs. 

Cousins 

957 

vs. 

Ernest 

756, 

978 

vs. 

Franklin 

786 

789 

vs. 

Godfrey       205, 

429, 

44(i, 

469 

.  757 

771 

vs. 

Inglis 

957 

vs. 

Irving 

430 

vs. 

I  VfS 

156 

vs. 

Jackson 

950 

vs. 

North 

950 

vs. 

Scott 

757 

Scoitld  vs.  fhittor 

813 

Scracc  vs.  Wliittington 

76;i 

Iv 


111 


Tabic  of  Cases. 


Scrimsicour's  Claim     233,  317,  3sC., 

387,  120,  42J,   136.  43S,  103,  <)92, 

i)f>5.  1001.  1001 

RcruiXiis  vs.  ("otterill  .S33,  SAA 

Seariii';  vs.  Butler  3.53,  30.'') 

Searles  vs.  Lmu  510 

Scars  vs.  Ames  8S9 

vs.  Boston  831 

Secor  vs.  Goslin  203,  62.5 

Security    Bunk    vs.     National 

Bank  673 

Seddon  vs.  Resenbaum  896 

Seeligson  vs.  Lewis  51 1 

Selby  vs.  Morgan  870 

Selden  vs.  Eq.  Trust  Co.  177 

Sergeant    vs.    Franklin    Insur- 
ance  Co.  476 
Sewall  vs.  Boston  Water  Power 

Co.    728,  729,  730,  906 

vs.  Lancaster  Bank  777 

Sewell  vs.  Ives         45,  80,  107,  108, 

126,  137 

Sexton  vs.  Commercial  Ex.  94 

Seybel  vs.  Nat.  Currency  Bank 

649,  684,  6SG 
Sevmour    vs.  Bridge    473,  488,  785 
vs.  Delancy  829 

Shapley  vs.  Abbott  750 

Sharp  Vs.  Stalker  593 

Shattuck  vs.  Robins  624 

Shaw   vs.  Bentley  968 

vs.  Caledonian   Railway 

Co.  541 

vs.  Clark  533 

vs.  Fisher         815,  817,  818, 

825,  827,  829,  832 

•  vs.  Holland  902,  906, 

909,  915 

vs.  Port    Philip    Mining 

Co.  732 

vs.  Railroad  Co.         660,  679 

vs.  Rowley  827 

vs.  Spencer        462,  712,715 

Shea    vs.    Metropolitan    Stock 

Exc.  520 


Slu'chy  vs.  Shinn  .507 

Sheffield  vs.  Banks        278,  651 ,  S03 
vs.  Barclay  732 

vs.  London     .Tnint- 

Stock  Hank  CTl 

Shenield  Gas  Co.  vs.   Harrison 

817,  snt 

.Slicldon  vs.  Parker  6.59 

Shcllington  \-8.  Howland      268,  269 
Shclmcrdine  vs.  Wal.sh  250 

Sliepard  vs.  Stockham  837 

Shepherd  \s.  Gillespie 825,  828, 999 
vs.  Johnson  913 

vs.  Sawyer  518 

Sheppard  vs.  Barrett    48,  118,  415, 

438 

vs.  Murphy         757,   828, 

986,992,  999,  1008, 

1012,  1039 

Sherwood  vs.  American     Bible 

Society  37 

vs.  Meadow  703 

vs.  Tradesman's 

Nat.  Bank         889 
Shinkle  vs.  Vickery  836 

Shipman  vs.  Rollins  37 

Sherman  vs.  Weiss  790 

Shermerliorn  vs.  Trust  Co.  8(55 

Shipley    vs.    Mechanics'    Bank 

8.50.  852 
Shoemaker  vs.  Exchange  35 

Short  vs.  Mercier  402 

Shrewsbury  vs.  Blount  623 

Shropshire  Union  R.  ct  C.  Co. 

vs.  The  Queen  710,  724 

Shumates'  Ca.se  516 

Sibbald    vs.    Bethlehem    Iron 

Co.  211,  397 

Sibley    vs.    Carteret    Club    of 

Elizabeth  102,  103 

Sigua  Iron  Co.  vs.  Brown  270 

Silberman  vs.  Clark  416 

Sillcocks  vs.  Gallandet  290 

Si  nun  vs.  Anglo-American  Tele- 
graph Co.  731,734 


Tabl«'  of  Cases. 


lix 


Simmons  vs.  Bank 

716.  S03 

915 

vs.  More 

214 

vs.  Monier 

135 

vs.  Taylor 

683 

688 

Simon  vs.  Merritt 

683 

Simpkins  vs.  Lane 

911 

Sims  vs.  Maj' 

298, 

392 

vs.  Vyse 

320 

.321 

Singerly  vs.  Jolinson 

47,60 

116 

Sinsrleton  vs.  Bank 

504 

Sipe  vs.  Finarty 

518 

Sistare  vs.  Best 

201, 

241, 

323, 

361 

Sizor  vs.  Miller 

873 

Skelton  vs.  Wood 

372, 785 

967 

Skiff  vs.  Stoddard 

181,  193, 

194, 

19G,  206,  213,  220, 

245,  252, 

2.55, 

2.58,  281,  282,  284, 

285,  292, 

.324, 

392,  426 

434,  439, 

527 

Skinner   vs.  City     of 

London 

Marine 

Ins.  Cor- 

poration 

910 

vs.  Osgood 

501 

Skipworth  vs.  Gibson 

870 

Skunk  vs.  Merchants' 

Bank 

792 

Slack  vs.  Bank 

787 

Slemmons  vs.  Thomp 

son 

855 

Sloman  vs.   Bank  of 

England 

726, 

720 

Slosson  vs.  Duff 

S73 

Smart  vs.  Mechanics' 

Bank  865 

873 

Smedlcy  vs.  Roberts 

8(58 

Smith  vs.  Barclay 

1.52 

1.55 

vs.  Barringer 

414 

vs.  Blundy 

432 

vs.  Bollcs 

90} 

vs.  Bouck 

xso 

vs.  Bouvier 

207,  29.S, 

303, 

323,  32.5, 

432,  .5.5.S, 

.561, 

.565,  5()9 

612 

V8.  Clencli 

623 

vs.  Co. 

26 

vs.  Compton 

1.35 

VH.  n.'ath 

272 

S72 

VH.  Kummcrcr 

570 

vs.  Lindo         220,  424,  955, 
956,  962,  963 
vs.  Nelson  37 

vs.  N.  Y.,  etc.,  Clearing 

House  255,  366 

vs.  X.     Y.     Stock    and 

Produce  Ex.  207,  215, 

2,55,  394,  .590,  645 

vs.  Pettee  910 

vs.  Pryor  300,  426 

vs.  Reynolds    228,  425,  445, 

752,  986 

vs.  Savin  279,  280,  281,  282, 

283,  292,  353,  926,  935 


vs.  Schibel 

658 

vs.  Seattle 

366 

vs.  Smith 

518 

vs.  Thomas 

.563,  564,  565, 

566 

vs.  Tracv 

299 

vs.  Western  LTnion  Tel. 

Co.  511,  .531 

Smyth  vs.  Glendinniiig         19S,  746 
Snelling  vs.  Howard  751,  760 

Snoddy  vs.  Bank  .507,  531,  586,  647 


Snow  vs.  Wlieelor 

42 

Soljy  vs.  The  People 

502 

Soci(5t6  Generak^  vs.  Walker 

716 

Soc.  for  Visitation  of  Sick  vs. 

Com.                      90.  10  1,  111, 

112 

Solomon  vs.  McKay               90, 

110 

Somerby  vs.  liuntin              888 

889 

Sondhcim  vs.  Gill)('rt 

525 

Somu'born  vs.  I.a\('n'll<i       107, 

1.3S 

Soudieu  vs.  Faurcs 

91(1 

Soulos     \s.     Wcldon     National 

Bank 

526 

So\ifh    .Xfrican     Tcrrrtorics    \s. 

Wallington 

S2I 

South  .\frican  Trust  »V  I'inancc 

Co.,  In  ro 

603 

Southall  vs.  Farish 

S73 

.Soiitlicr  vs.  StiM'ckli 

1  10 

Sparliawk    \s.  I)ri'\il  .{5.3,  .356 

,361) 

vs.  Vcrki'.s 


153.  1.59 


Tabl«'  of  Cases. 


Sparks  vs.  Husted  IS 

Sparlinp;  vs.  Parker  SSI 

Spear  vs.  Hart  453 

Speight  vs.  Gaunt  242,  393 

Sperry's  Appeal  64,  112 

Speyer  vs.  Col.ijato        21S,  3*H),  774 
Spinney  vs.  Hill  S9S 

Spooner  vs.  Holmes  653 

Sprajnie  vs.  Cocheco  Mfg.  Co.     712 
vs.  Warren  601,  646 

Spreckels  vs.  Nevada  Rank         250 
Spreeve  vs.  Adams  774 

Sproul  vs.  Morris  35 

Squires  vs.  Whisken  517 

Stack  vs.  O'Hara  91,  95 

Stackhouse    vs.     Countess    of 

Jersey  800 

Stackpole  vs.  Seymour  854 

Stalker  vs.  McDonald  693,  694,  695 
Standen  vs.  Brown  870 

Stannard      Milling      Co.      vs. 

Flower  530 

Stanton  vs.  Allen  638 

vs.  Percival  824 

vs.  Small  .543,  612 

Staples  vs.  (Joukl         332,  333,  334, 

490, 491 

Star  Fire  Ins.  Co.  vs.  Palmer     383 

Stark  vs.  Bank  790 

Starkey  vs.  Bank  of  England      732 

State  Bank   vs.  Armstrong  7S6,  791 

vs.  Coquillard  861 

vs.  Cowan  873 

State  of  Illinois  vs.   Delafield 

301,  651 
State  of  Nevada  vs.  Guerrew  856 
State  of  New  Jersey  vs.  Rector 

of  Trinity  Church  152 

State  vs.  Associated  Press  27 

vs.  Bank  856 

vs.  Beach  792 

vs.  Bell  Telephone  Co.  25 

vs.  Canal  857 

vs.  Carpenter  856 

vs.  Carriage  Co.  853,  856 


Stale  vs.  ("hamher      of      (Com- 
merce   (1)  11 0 
vs.  Chamber       of     Com- 
merce   (2)  1 15 
vs.  Cheraw                             856 
vs.  Cincinnati     Chamber 

of  Commerce      97,    1()() 
vs.  Cobb  651 

vs.  Corcoran  527 

vs.  Crescent  City  Co.         843 
vs.  Cunningham  509 

vs.  Duncan  177,  507 

vs.  Field  176 

vs.  First    National    Bank 

of  Jefferson  855 

vs.  Ga.  Med.  Soc.  62,  109,  111 
vs.  Grimes  528 

vs.  Gritzer  509 

vs.  Kenter  509 

vs.  Logan  509 

vs.  Lusitanian         Portu- 
guese Soc.  112 
vs.  McMillan                          527 
vs.  Milwaukee     Chamber 

of  Com.  60,  62,  65, 

110,  11! 
vs.  N.  ().  i^-  C.  1{.  Co.  S51 
vs.  Orleans  K.  H.  Co.  857 
vs.  Rombauer  850,  853 

vs.  Sla^onska  1 1 2 

vs.  Smith  249 

vs.  R.  R.Co.  225 

vs.  St.   Louis  Paint  Mfg. 

Co.  852 

vs.  The  Georgia  Med.  Soc. 

62,  109,    ill 
vs.  Vn.    Merchants'    Ex. 

110,  111,  133,  135,  136 
vs.  Warren  Foundry  Co.  852 
vs.  Williams  64,  72 

Steadman  vs.  Hockley  806 

Stearns  vs.  Marsh  349 

Stebhins  vs.  Leowolf     491,  494,  495 
Steers  vs.  Lashley       483,  484,  555, 

647 


Table  of  Cases. 


Ixi 


Steinman  vs.  Wilkins  S07 

Stenton  vs.  Jerome     191,  102,  307, 

335,    336,    337,    348, 

353,    354.    38(i,    429. 

7S2 

Stephens   \'.s.  Board  799 

vs.  De  Medina    234.  1043 

Steptoe  vs.  Harvey  SOS 

Sterlins  vs.  Jaudon       192,  322,  380 

Stern  Brothers  vs.  Bank  090 

SternberiTcr  vs.  Bernheinier         316 

Sterns  vs.  Marsh  295,  350 

Stevenson  vs.  Unfecher  873 

Stevens  vs.  Hurllxit   liank  934 

Stewart,  Ex  parte  800 

Stewart  vs.  .\berdein  430 

vs.  Cauty        225,  235,  424, 

430,  443,  909.  934 

vs.  Drake      2.55,340,341, 

347,  348 

vs.  Garrett  579 

vs.  Lupton  1044 

vs.  Urvis  267 

vs.  Parnell  548 

vs.  Schall  599 

Sticktenoth  vs.  Central  Ex.  of 

ChicafTo  531 

Stief  vs.  Hart  260 

Stiason  vs.  Thornton  713,  729 

St.    I^awrence  Steamboat   Co., 

In  re  2.50 

St^K'k  Co.  vs.  Gahnoyle  221 

Stock   Exrhangc  vs.   Board  of 

ThmJc  ()2H 

Stwkinn  \'s.  Sapc  784 

Sto<kwell  vs.  Holmes  873 

StfKJdard  vs.  Kimb.ill  691.  695 

St<H?v«'r  \s.   Whit  man  <i65 

StoKdeii  vs.  \a-o  761,  1022 

Strikes    vs.  Kr;i/i.T  349,  .383 

vs   Stoki'H  S37 

Stone    vs.  Kliiofl  682 

vs.  I,iilhro|>  2i>9 

vs.  Marsii  243 

StonebridKe  vs.  Smith  111,  119 


Stoneham  vs.  Wyman 

Story   vs.  Brown 
vs.  Salomon 


447,  750, 

1031 

768 

204,   602, 

604,  646 

769 

321 


Stoughton  vs.  Lynch 

Stover  vs.  Flack 

Stowe  vs.  Hamilton  Bank  795 

Strachan,  In  re   181,  294,  978,  1003 

Straffon,  Ex  parte  827 

Strange   vs.  Houston  &  T.  C. 

R.  R.  Co.      729,  734 
vs.  Lee  52 

Strasburg  R.  Co.  vs.  Engelhardt  835 
Stratford  vs.  Jones  781 

Strathmore  vs.  Vane  796 

Straus   vs.    Tradesman's    Nat. 

Bank  786,  798 

Stray  vs.  RusseU         247,  267,  424, 

444,  765, 1024,  1043 

Street  vs.  Morgan  757 

vs.  Rigby  135 

Strcmpel  vs.  Rubins  104 

Stribbhng  vs.  Bank  865 

Strickland  a's.  Leggett  295 

Strong  vs.  Lyon  238 

vs.  Xat.  Banking  Assn.  349 

vs.  Place  316 

vs.  Smith  248 

Strouse  \s.  Elting  898,  899 

Struthors  vs.  Clark  904,  906 

vs.  Drexel  861,  .S70 

Stuart  vs.  Bank  873 

vs.  Bigler  152 

Sturges  vs.  Board  of  Trade     60,  62, 

108 
Sii.ir.'/,  vs.  Hunipclly  393 

.Sullivan  vs.  Jernigaii  432 

vs.  Postal   Tel.   Co.  23 

vs.  Tuck  8.16 

Summerlin   vs.    I'rontcriza  Sil- 
ver Mining  iV;  .Milling  Co.         8.32 
Sumner  vs.  Stewart  125 

Suter  vs.  MutthewH  812 

Sutherland,  In  re  158 


Ixii 


Table  of  Cases. 


Sutton  vs.  Gray 

319 

vs.  TatiKiin     -ill. 

220, 

225, 

■I2l 

425, 

442 

Huytiain  vs.  Jenkins 

931 

Swan,  Ex  parte 

705 

Swan    vs.  Baxter 

434 

vs.  North    British 

Aus- 

tralasian  Co. 

705, 

726 

vs.  Prodnee  Bank 

712 

Swanson  vs.  White 

865 

Sweeney  vs.  Rogers 

207 

Sweeting  vs.  Pearce 

45S 

Swift,  In  re         191,  194, 

195, 

196, 

210,  284,  352 

390 

927 

Swift  vs.  Tyson             691 

694 

790 

Swifts  vs.  S.  F.  S.  &  E.  Board 

49 

Swim  vs.  Wilson 

679 

707 

Symons  vs.  Mulkern 

650 

787 

Taft  vs.  Chapman  693 

vs.  Riesenman  569,  570 

Tahiti  Cotton  Co.,  In  re      278,  821 
Taintor  vs.  Prendergrast  754, 

755,  765 
Talbot  vs.  Doran    &    Wright 

Co.   219,  775 
vs.  Warfield  873 

Taliaferro  vs.  First  Nat.  Bank 

284,  440,  674 

Tallentine  vs.  Ayre  206 

Talmage  vs.  Bank      206,  279,  281, 

282,  283,  355 

Talty    vs.    Freedsman's    Bank 

284,  672 

Tantiun  vs.  Arnold  527,  593 

Tate  vs.  Wellings         480,  869,  872 

Tatem  vs.  RecAC  556 

Tattersall  vs.  Groote  140 

Taussig  vs.  Hart  193,  208,  255,  258, 

298,    366,   368,    373, 

384,  933 

Ta>lor,  Estate  of  198,  570 

Taylor  vs.  Bailey        210,  427,  501 

vs.  Blair  312 


Taylor  \s.  Great   Indian   Pen- 
insula  Ry.  Co.     703, 
705,    709,    726,    730, 
1008,  1009 
vs.  Guest  367 

vs.  Ketcluuu  192,    255, 

329,  451 
vs.  Page  699 

vs.  Penquite  595 

vs.  Pknner      181,  292,  293, 
294,  1002,  1003 
vs.  Stray         220,  244,  247, 
266,  268,  963 
Teasdale  vs.  McPike  595 

Tempest  vs.  Kilner     220,  222,  475, 
880,  902,  909, 915 
Temple  vs.  Toronto  Stock  Ex. 

98,  112 
Tenant  vs.  Elliott  577,  966 

Tenney  vs.  Foote  647 

Terrell  vs.  Georgia  R.  R.  Co       855 
Terry  vs.  Birmingham  Savings 

Bank  368,  4-11 

vs.  McNeil  937 

Terwilliger  vs.  Knapp  90S 

Tetlcy  vs.  Shand  761 

Teutonia  Bk.  as.  Loeb  795 

Texas  vs.  Wliite  689 

Thacker  vs.  Hardy      228,  479,  487, 

554,  568,  570,  572,  573,  575,  578, 

612,  646,  994,  999,  1006 

Thackoorseydass    a-s.    Dhond- 

mull  517 

The  Carteret  Club  as.  Florence 

103,  104,  109 
The  City  vs.  J.amson  653,  654 
The  King  vs.  Bank  of  England 

849,  850 
vs.  Berenger        619,  638 
The   New   Brunswick   Co.    vs. 

Muggeridge  817,  828 

The  Reeside  665 

The  Soc.  for  the  Visitation  of 
the  Sick  vs.  The  Common        90, 

104,  111,  112 


Table  of  Cases. 


Ixiii 


The  White  and  Black  Smiths 

Soc.  vs.  Van  Dylve 
Third  Nat.  Bank  vs.  Boyd  241 
vs.  Harrison 

525,  594 
vs.  Tinsley 

Thorn  vs.  Bigland 
Thomas,  Case  of 
Thomas  vs.  Elhnaker  2 

vs.  Graves 

vs.  Hooker     Col  villi' 
Steam    Pump 
Co. 
vs.  Murray 
vs.  Xew'ton 
Thompson  vs.  Adams  22,  60, 
14S 
vs.  Alser  492,  494, 
892,  893 


vs.  Bank 


283, 
353 


vs.  Brady 

vs.  Brown 

vs.  Charnock      135, 

vs.  Cununin^s    501 

vs.  Davies 

vs.  Dominy 

vs.  Harcourt 

vs.  Le<;  County 

vs.  Maddox 

vs.  .Mayor 

vs.  Meade 

vs.  rianet      licm-fit 
Biiildiii^i  Soc. 

vs.  Powlcs 

vs.  RioixT 

vs.  St.  .Nicholas 

.Nat.  U-.iuk 

vs.  Tolaiid  193, 

(i57,  705, 

vs.  Whitney 
Thoiiip«on'H  I<^lutc 
Tlionison  vs.  CIvdewlale  Maiik 


90 
242 

.  794 

525, 

594 

774 

43 

1,  29 
432 


411 

8G9 

482 

117, 

439 

496, 

,  908 

295. 

425 

522 

321 

140 

,  550 

Gas 

657 
815 
653 
599 
397 
207 

I  14 
S70 
569 

(iSl 
255, 
713 
H97 

5rs 

2«»5, 
799 


Thomson  vs.  Davenport      444,  746 
Thorndike  vs.  Locke  908 

Thorp  vs.  Woodhull  843 

Thuemmler  vs.  Barth  790 

Thurman  vs.  Wilson  908 

Thwaite  as.  Warner  484 

Til)betts  vs.  Blood  42,  46 

Ticknor's  Est.  37 

Tiernan  vs.  Jackson  656,  657 

Tiffany  vs.  Williams  41 

Tiller  vs.  Spradley  751 

Tilloy   vs.   County   of  Cook       414, 

421 

Timms  vs.  Williams  144 

Timpson  vs.  Allen  214,  215 

Tindall  vs.  Childress  518 

Tisdale  vs.  Harris      777,  886,  887, 

888,  889,  894 

Tobey  vs.  Bank  787 

vs.  Hakes      \      850 

Todd  vs.  Bishop  375 

vs.  Diamond  State  Co.       838 

vs.  Shelbourne  695 

vs.  Taft  842 

Tomblin  vs.  Callen  504,  580 

Tome  vs.  Parkersburfth  R.  R. 

Co.  705,  742 

Tomkins  vs.  Saffory    120,  122,  123, 

125,  126.  469,  978,  9S0 

891 

896 

838 

56 

9SS.  1032, 

1033,    1034 

899 

S56 

,S()5 

SI'.),  S5I. 

.S.-,() 

Tr.iiiiniel  \s.  (iordou    51(),   135,  151 

Traii.xcontincntnl   Co.    vs.    ilil- 

MHTs  416,   135,  451 

Treasurer  vs.  Conunercial  C<i. 

.S41,  ,S45 


Toinlinson  \'s.  -Millci- 
Tompkins  vs.  Shcohan 
ToplilT  vs.  .McKcndree 
Torrey  \s.  Bjikcr 
Torrini^ton  \s.  Lowe 

Towlc  vs.  Tdpliaiii 
TowiH's  vs.  .Nichols 
Town.scnd   vs.  Cornino; 
vs.  Mclvcr 


Ixiv 


Ta])lo  of  Cases. 


Treat  vs.  Snydecker  501 

vs.  White  405 

Trebilc'ock  vs.  WiKson  543 
Trenton,     etc.,     In.s.     Co.     v.s. 

John.son  518 
Trevelyan  v.s.  Cliartor  366,  3S2 
Trinil)ie  v.s.  Bank  733,  734 
True  vs.  Houirhton  846 
Trueman  v.s.  Loder  763 
Trumlile  v.s.  Ward  624 
Tnell  vs.  Paine  213 
Tally  vs.  Tranor  930 
Turner,  Ex  parte  479 
Turner  vs.  Liverpool  Docks  708 
vs.  Moy  825 
vs.  Tread  way  693 
Turnoy  vs.  Bank  873 
Turpin  vs.  Turpin  873 
Twycross  vs.  Grant  628 
Tyler  vs.  Barrows  543 
Tynji  vs.  Coninicrcial  Ware- 
house Co.  870,  874 

u. 

Ubben  vs.  Binnian  501 

Union   Bank   of  Australia   vs. 

Murray-.\ynsley  791 

Union  Bank  vs.  Carr  504,  580 

vs.  Laird  717 

vs.  Leary  898 

vs.  Tutt  786 

Union  College  vs.  Wheeler  697,  698 

Union  Pac.  R.  Co.  vs.  Schiflf        291 

Union  Stock   Yards   Bank  vs. 

Gille-spie  798,  803 

United  States  vs.  liank  of  Mo- 


vs. 
vs. 
vs. 
vs. 

vs. 


649 
177 
177 
618 


tropolis 
Cuttinu; 
Fisk 

Knisiht  Co 
National  lik. 

of  .Ashville  798 
Northern  Se- 

c  u  r i  t  i  es 

Co.  640 


United  States  vs.  Thomas  178 

vs.  Vaughan  494 
United   States    Bank    vs.    Ma- 

calester  786,  795 

United  States  Co.  vs.  Union  51 
Universal  Stock  Exchange  vs. 

Stevens  5-12 

vs. 

Strachan  538,  603,  646 

Upton  vs.  Gray  765 

Uther  vs.  Rich  685 


Vail  vs.  Rice  432 

Vallev  Bank  vs.  Stribling  865,  866, 

873 

Van  .\len  vs.  Vanderpool  301 

Van  .Mien  vs.  Bank  792, 

798,  903 

V.S.  Illinois  C.  R.  R. 

Co.  903 

Van    Blarcom    vs.    Broadway 

Bank   '    292 
vs.  Donovan      594 
Vance  vs.  Tournc  903 

Vanderheyden  vs.  Vanderhey- 

den  397 

Vanderpoel  a-s.  Kearns  585 

Vanderzee  vs.  Willis  795 

Van    Dieman's    Land    Co.    vs. 

Cockerill  903 

Van  Dusen-Harrington  Co.  vs. 

Jungeblut  220,  366,  408,  426 

Van  Horn  vs.  Gilbough      342,  353, 

365,  438 

Van  .\orden  vs.  Keene  204,  405 

Van  Valkenburgh  vs.  Stupple- 

becn  687 

Van  Vonrhis  \s.  Rea  259,  435 

Van  Winkle  Co.    vs.   Citizens' 

Bank  794 

Van  Woert  vs.  Olmstead  292 

Vaughan  vs.  Wood  329 

Vaughn  vs.  Hemdon    64,  1.36,  1.3S, 

139 


Table  of  Cases. 


Ixv 


Vaupell  vs.  Wocxlwanl       191,  ^^29. 
43ri,  4S2,  491,  «)()0 
Vawter  vs.  Baker  701 

vs.  Griffin  884,  889 

Veazy  vs.  Allen  324 

Veil  vs.  Mitchell  79S 

Venables  vs.  Baring     440,  0.50,  009, 

071 
Verniilye,  In  re  212,  218,  771 

Vermilye  vs.  Adams  E.\p.  Co. 

450,  049,  073,  077,  088 
Vennuele  vs.  Vermuele  871 

Vickry  vs.  State  SaA'.  .\ssn.  790 
Village  of  Hempstead  v.s.  Sey- 
mour 838 
Vinton  vs.  King  688 
Violet  vs.  Powell  755 
Violett  vs.  Mangold  510 
Virden  vs.  Murphy  528 
Virtue  vs.  loka  48 
Vischer  vs.  Bagg  588 
Voris  vs.  McCredy  775 
Vowell  vs.  Thompson  250 
Vuden  vs.  Murphj-  528 
Vyne  Andrew  de,  Case  of            956 

w. 

Wachtel  vs.  Society  64,  98 

Waddeli  vs.  Blockley  927 

Waddle  vs.  Lober  518 

Wagner  vs.  Hildebrand      198,  570 
vs.  Peterson  927 

W'aite  vs.  Bartlett  139 

vs.  PVank  533,  640 

Wait  vs.  Johnson  755 

Wakefield  vs.  Famum  549 

Wakeman  vs.  Dalley  023 

Walcott  vs.  Heath       .501 .  008,  030, 

04  (> 

Waidron  vs.  Johnson  501,  581 

Walker  vs.  Bamberger  H90 

V8.  Bartlett     735,827,881. 

1035 

VB.  Johnson  .501,  531 

vs.  Manhattan  Bank       S()3 


Walker  vs.  Supple 

889 

Wall  vs.  Metropolitan 

Stock 

Exchange 

520 

vs.  Schneider 

543 

Wallace  vs.  Townsend 

843 

Waller  vs.  Thomas 

42 

Walls  vs.  Bailey          41 

,  410, 

425 

Walpole  vs.  Saunders 

517 

Walters  vs.  Comer 

598 

Walters  vs.  Howard 

836 

Walter  vs.  King 

362 

380 

Ward,  Ex  parte    120,  120,  430,  445, 

470,  044,  750 

Ward,  In  re  120,  120,  430,  445, 

470,  644,  7.50 

Ward  vs.  Southeastern       Ry. 

Co.  851,  856 

vs.  Van  Duzer  211 

vs.  Vosburgh    409,  439,  501, 

581 

Ware    vs.  Hayward        Rubber 

Co.  394 

vs.  Jordan  585 

vs.  Raven  345 

Warfield  vs.  Boswell  873 

Warner  vs.  Gouvemeur  875 

Warren  vs.  Hewitt  536,  582 

vs.  Louisville    Ex.  72 

vs.  Scanlon  501 

vs.  Shook  177 

Washburn  vs.  Franklin  493 

Washer  vs.  Bond  511 

Waterbury       vs.       Merchants' 

Union    Express    Co.       29,  54,  09 
Waterhoiise    vs.    London    l{y. 

Co.  729 

Waterm.an  vs.  Buckland      585,  61 1 

Waters  vs.  Marrin  199,  394 

Watson    vs.  Black  971 

vs.  Miller  701 

vs.  Spratloy  880,  881 

Watte  vs.  Costclio  .500 

vs.  Wickcrsham  (MM 

Watts'  VM.  170 

Watts  vs.  Brooka  963 


Ixvi 


Tahic  of  Cases. 


\V;itts  vs.  Christie 
WjukI,  Ex  parte 
Waugh  V.S.  Beck 

vs.  Seaboard  Bank 
Weatherhead  vs.  Boyers 
Weaver   vs.  Barden      705, 

vs.  Fisher 
Webb  vs.  B.  &  E.  S.   R. 

vs.  Challoner 
vs.  Commissioners 
Heme  Bay 
vs.  Meyers  168, 

Webster  vs.  Sturges 
vs.  Upton 
"Weed  vs.  Small 
Weeks  vs.  Talcott 
W^eidenfeld  vs.  Keppler 
Weightraan  vs.  Caldwell 
Welch  vs.  Sage  652, 

vs.  Mandeville 
Weld  vs.  Barker 
Welles  vs.  Cowles 
Wells  vs.  Gates 

vs.  Green  Bay  Co. 
vs.  McGeoch 
vs.  Porter 
vs.  Welter 
Wentworth  vs.  French 
Werdcr,  Matter  of 
West  vs.  Holmes 
vs.  Knight 
vs.  Marquart 
vs.  Wright 
Westcott  vs.  Fargo 

vs.  Mulvane 
Western  Bank  vs.  Potter 
Western    Union    Tel.    Co. 
Blanchard 

Chamblee 

Davenport 

Littlejohn 


SOI, 

S02 

538 

548 

411, 

457 

873 

729, 

7S0 

113, 

155 

Co. 

884 

889 

220 

of 

851 

169, 

171 

500, 

502 

246 

769 

160 

46, 

110 

889 

680 

686 

657 

411 

459 

889 

30 

,   40 

843 

638 

479 

552 

215, 

216 

249 

158 

526 

591 

501 

589 

591 

42 

832 

869 

874 

vs. 

504, 

530 

vs. 

532 

vs. 

726 

729 

vs. 

510 

Western     Union    Tel.    Co.    vs. 

Way  532 

Westinghouse  vs.   Bank  706 

West  of  England   Paper  Mills 

vs.  Gilbert  968 

Weston,  In  re  339 

Weston  vs.  Ives     45,  60,  61,  70,  71, 

114,  119, 


vs.  Jordan 

293 

Westropp  vs.  Solomon 

190, 

220, 

221 

425 

Wetmore  vs.  Barrett 

597 

Wheeler  vs.  Exchange 

525 

vs.  Friend 

518 

vs.  Garcia 

390 

vs.  McDermid 

500 

vs.  Millar 

269 

vs.  Newbould 

347, 

349, 

358 

451 

vs.  Sedgwick 

321 

Wheeless  vs.  Fisk 

543 

Wheelock  vs.  Kost 

266 

vs.  Lee 

874 

Whelan  vs.  Lynch 

937 

Whistler  vs.  Forster 

659 

,  690 

Whitaker  vs.  White 

213 

White  and   Blacksmith 

3     SOC. 

vs.  Van  Dyke 

90 

Whitehead    vs.    Izod 

220, 

229, 
266 

WTiitehouse  vs.  Moore 

425, 

429, 

435 

784 

Whitesides  vs.  Hunt 

587 

White  vs.  Barber 

501 

,  531 

vs.  Baxter  103,  425,  435 

vs.  Brownell  20,  21,  28,  29, 

32,  33,  44,  45,  59,  60, 

61,  64,  69,  73,  75,  76, 

80,  104,  108,  134,  135, 

137,  145,  188,  428 

vs.  Drew  313,  894 

vs.  Eason  510 

vs.  Fuller  392 

vs.  Howard  37 

vs.  Jaudon  782 


Table  of  Tiises. 


Ixvii 


White  vs.  Kearney  910 

vs.  Schuyler  842 

vs.  Smith         201,  323,  325, 

329,330,386,916,917. 

919,  927 

vs.  Treat  178 

vs.  Wright  864,  867 

Wliiting,  Ex  parte  808 

Wliitlark  vs.  Davis  537 

Whitley  vs.  Foy  799 

Whitlock  vs.  Bank  283,  428 

Whitman  vs.  Hubhill  42 

Whitney  vs.  Boardman  910 

vs.  Pane  266 

Whittemore  vs.  Gibbs  887 

^^^littmo^e  vs.  Malcomson  591 

Whitworth  vs.  Adams  863 

Wicker  vs.  Gordon  962 

Wickler  vs.  First  Nat.  Bank       173 

Wicks  vs.  Hatcli         234,  305,  307, 

323,  353,  363 

vs.  Monihan  45,  103 

Wiechers  vs.  Central  Trust  Co.  726 

Wiggins  vs.  Gans  767,  70S 

Wigfilesworth  vs.  Dallison  424 

Wight  vs.  Wood  318 

Wilde  vs.  Jenkins  771 

Wildy  vs.  Stephenson  410,  752 

Wiley  vs.  Board  of  Trade         22,  26 

Wilkes  vs.  Ellis  953,  9.56 

Wiikinijon  vs.  Providence  Bank 

853,  854 

Willfofks,  Ex  parte  247 

William-s    vs.  Archer  915 

vs.  Aroni  300 

vs.  Bank    of    Miclii- 

gan  40 

V8.  Colonial  Bank        471 
vs.  Gn;nKs  727 

VH.  Gulinaii  4  16 

vs.  .Millirijrton  H()6 

VH.  Pe.  1  Hivor  Co.       803 
VH.  The  London 

Com.        I';\(li. 
Co.  774 


Williams  vs.  Tiedeman  593 

vs.  Trust  Co.  353 

vs.  Tyre  403, 

479,  482 

vs.  Williams  664 

Williams,  In  re  786,  787 

Williamson   vs.  Ellis  429 

vs.  Krohn  846 

vs.  Mason         173,718 

vs.  McClure  3,50 

Williar  vs.  Irwin  409,  547,  646 

Willard  vs.  Doran     it     Wrisiht 

Co.  519.  521 

vs.  White        281,282,284, 
519,  766,810 
Willis    vs.    Philadelphia    Rail- 
road Co.  741 
Willoughby  vs.  Comstock  340,  362, 

869 

vs.  Edwards  780 

Wilson  vs.  Commercial  Tel.  Co.    20, 

25,  31,  32,  45 

vs.  Curzon  42 

vs.  Dawson  795 

vs.  Head  520 

vs.  Keating  825 

vs.  Kilburn  873 

vs.  Little  264,307,913 

vs.  Martin  806 

vs.  Short  374 

Wiltshire  vs.  Sims         301 ,  432,  793 

Wily  vs.  Pearson  884 

Winans  vs.  Ilassey  300,  310 

Windale  vs.  Fall  "  481 

Winston  vs.  Westfeldt  682 

W  inter  vs.  Belmont  703 

vs.  .Mining  Co.  705 

Winward  vs.  Lincoln  522,  527 

Wirt  vs.  Stubblclield  532.  647 

Witherhead  vs.  Alien  .53 

Withy  VH.  Cottle  824 

Wolcott  VH.  Heath  608.  612 

Wolf  VH.  Campbell  116 

VH.  Nutiotial      Bank      of 

IllinoiH  .501 


Ixviii 


Tahh'  of  Casos. 


Wolff  vs.  r.ockwood     21  .">,  :?  IS,  77:?, 

<)20 
^Volsl«y  vs.  Nci'U'v  .'■)()1 

Wolstenholin  vs.  Tlu-  Sli.-llicld 

Bank  7s'.) 

Wonsoii  v.s.  Feniio  MO,  S  12 

Woodbridge  vs.  Blair  751 

Woodd,  Re;  Ex  parte  Kini;  120,  200 
Woodman  vs.  Churchill  G83 

AVoodrulT  vs.  Ilunson  871 

Wood's  Appeal  705,  709, 

714,  720 
Wooils  vs.  De  Fif^aniere  12 

Woodsworth     vs.     Joint-stock 

Co.  38 

Wood  vs.  Hamilton  358 

vs.  Hayes  194,  255,  779,  804 

vs.  Hickok  432 

vs.  Morewood  910 

vs.  Perkins  845 

vs.  Roylston  Nat.  Bank  786 

vs.  Sheehan  794 

vs.  Smith  '  714 

vs.  Stafford  799 

vs.  Travis  697 

Woodward  vs.  Harris  831 

vs.  Powers  905 

Woodworth  vs.  Bennett      484,  647 

vs.  Huntoon  683 

W^ookcy  vs.  Pole  277,  651 

Woolley  vs.  Bank  795 

Wooster  vs.  Sage  311,313,  896 

W^ootters  vs.  Kauffman  433 

Work  vs.  Bennett  234,  782 

vs.  Tibbetts  295 

Worn  vs.  Fry  31 1 ,  366 

Worsley  vs.  Scarborovi.^li  681 

Worthinirton  vs.  Curd  658 

vs.  Tormey  255 

Wright  vs.  Bank  of  Metropolis 

926,  932,  934 


\\  light  \s.  Hoard    of   Trade   <>f 

Chicago  (>2 

vs.  Crahb  638 

vs.  Cudahy  501,  (IHS 

\s.  Fonda  595 

vs.  Ross  383 

Wronkow  vs.  Clews  201,  302, 

.305,  306 

Wyckoff  vs.  Anthony  321,  795 

Wykoff  vs.  Irvine  244 

Wyldo  \-s.  Radford  796 

Wylie  vs.  Speyer  690 

Wynian  vs.  American  Powder 

Co.  906 

vs.  Fiske        493,  496,  647 

Wynkoop  vs.  Seal       193,  197,  255, 

388,  566,  568 

Wynne  vs.  Price  825,  827,  828, 

999,  1044 

Y. 

Yerkes  vs.  Salomon      602,  607,  646 
York  vs.  Passaic  Rolling  Mill 

Co.'  832,  836 

Young,  Ex  parte  203,  500.  618 

Young  vs.  Cole  222 

vs.  Eanies  83,  97 

vs.  Glondinning  570 

vs.  Kitchin  658 

vs.  Smith  476 

Youngs  vs.  Lee  692,  695 


Zabriskie  vs.  Railroad 
Zeitner  vs.  Irwin 
Zelle  vs.  Institution 
Zeitner  vs.  Irwin 


64 
592 

792 

518 


Zimmerman  vs.  Heil  192,  206,  297 

Zinck  vs.  Walker  801 

Zuleta's  Claim  2.38 

Zulick  vs.  Markham  679,  705,  722 


LAW  OF  STOCK-BROKERS 


AND 


STOCK  EXCHANGES. 


ChA-PTER   I. 
INTRODUCTION. 

Origin  of  Stock-brokers  and  Stock  Exchanges. 

There  is  a  great  diversity  of  opinion  respecting  the  origin 
of  the  word  "  Broker,"  some  of  the  authorities  maintaining 
that  it  was  originally  applied  to  those  who  broke  up  goods 
into  small  pieces — retailers  ;  while  others  contend  that  the 
term  is  derived  from  the  Saxon  word  hmc^  misfortune,  and 
that  the  name  "  Broker"  comes  from  one  who  was  a  broken 
trader  by  misfortune,  which  is  often  the  true  reason  for  a 
man's  breiikin<r,  and  that  none  but  that  class  of  persons  Avere 
formerly  aduiitled  to  that  employment  in  London.^    Jiut  the 

*  Jacob's  Law  Diet.,  tit.  "  Bro-  draws  a  bargain  into  particulars 
kers."  "  Tlie  etymoloj;y  of  tlie  (Termes  do  la  Ley,  Cowell).  The 
term  Broker  has  been  variously  law  Latin  from  ohrocaU>r,  how- 
given.  By  some  it  has  been  de-  ever,  seems  to  point  distinctly  to 
rived  from  tin;  .Saxon  hror,  misfor-  the  Saxon  ubrxcan  (to  break),  as 
tune,  as  denoting  a  broken  trader;  tlio  ti  no  root,  which  in  the  old 
the  occupation  being  formerly  con-  word  ahbrorhiupnt  {q.  \.) or (ihioach- 
flned,  it  is  said,  to  unfortunate  i>er-  vimt,  had  the  sense  of  hnakiiKj  up 
sons  of  that  description  (TotnliDH).  goodx,  or  selling  at  retail.  A 
Acconling  to  others,  it  was  formed  Broker,  therefore,  would  seem  to 
from  the  Frencli  hroieitr,  a  grinder  have  originally  been  a  retailer,  and 
or  breaki-r  into  small  pieces;  a  hence  wo  find  tlio  old  word  due- 
Broker  being  one  who  beats  or  (/onurim  (q.  v.)  used  In  both  these 
1  1 


2  Stock-brokers  and  Stock  Exchanges. 

statutes  passed  in  the  reigns  of  Edward  the  First  and  James 
the  First,  hereafter  referred  to,  would  seem  to  indicate  that 
the  hitter  view  can  hardly  be  correct.  In  Enghuul  the  terra 
"  Broker  "  occurs  in  an  act  of  Parliament  as  early  as  the  year 
1285.'  It  recites,  in  substance,  that  whereas  divers  persons 
do  resort  unto  the  city  (London)  from  parts  beyond  the  sea, 
fuiritives  from  their  own  lands,  and  of  these  some  become 
"  Brokers,"  ostlers,  and  innkeepers,  etc.,  and  they  do  wear 
fine  clothing,  and  do  eat  costly  meat  and  food,  etc. ;  it  there- 
fore enacts  that  "  there  shall  be  no  Broker  in  the  city  except 
those  who  are  admitted  and  sworn  before  the  warden,  mayor, 
or  aldermen."  It  is  evident,  from  a  perusal  of  this  statute, 
that  the  occupation  of  Brokers  in  those  days  was  subverted 
by  persons  who  used  the  name  as  a  cover  to  transact  a  spe- 
cies of  disreputable  pawnbroker's  business  ;  and  hence  the 
severe  penalties  of  the  second  section  of  the  act,  which  pro- 
vided that  "if  any  other  innkeeper  or  Broker  be  found 
within  the  city,  or  any  other  of  whom  there  is  evil  suspi- 
cion, he  shall  be  arrested  by  the  warden,  or  mayor,  or  the 
sheriffs,  or  the  alderman  of  the  ward,  and  punished ;  viz., 

senses"  (BuiTill's  Law  Diet.,  tit.  cian,  to  oppress;  and  the  French 
"  Broker ").  Wharton  gives,  as  broijer,  to  grind.  See  "  Broke " 
the  derivation  of  the  vi'ord,  the  and  "  Broker."  The  word  "  Bro- 
French  broceur,  and  the  Latin  ker  "  seems  first  to  occur  in  litera- 
tritor,  a  person  who  breaks  into  ture  in  Piers  Ploughman,  "Among 
small  pieces  (Whar.,  Law  Diet.,  burgeises  have  I  be  Dwellyng  at 
tit.  "Broker").  Webster  gives  as  London.  And  gart  Backbiting  be 
its  derivation,  the  old  English  bro-  a  brocour.  To  blame  men's  ware." 
cour,  Norman  French  brog(jour,  It  clearly  means  here  a/fn(/<-^nder, 
French  brocanteiir.  Under  the  as  in  Provenpnl  6rac  isrefuse.  The 
word  "broke,"  to  deal  in  second-  Broker  was  originally  one  who  in- 
hand  goods,  to  be  a  Broker,  Web-  spected  goods  and  rejected  what 
ster  says  it  is  probably  derived  was  below  the  standard  (Wedge- 
from  the  word  brock.     Worcester    wood). 

derives  it  from  the  Anglo-Saxon  i  13  Ed.  I.,  Stat.  Civ.  London, 
brncan,  to  discharge  an  office;  bro-   1285, 


Origin  of  Stock-brokers  and  Stock  Exchanges.       3 

innkeepers  and  Brokers  shall  be  incapable  of  their  freedom 
and  adjudged  to  prison,  and  the  others  shall  be  punished  by 
imprisonment  or  otherwise." ' 

The  next  statute,  passed  in  the  reign  of  James  the  First, 
more  than  three  hundred  3'ears  after  that  just  recited,^  regu- 
lates the  calling  of  Brokers  with  greater  detail  than  the  first 
act,  and  clearly  shows,  by  the  use  of  the  words  "  merchan- 
dise and  wares,"  that  down  to  this  period  the  Broker  in 
money,  stock,  and  funds  had  no  recognized  legal  existence. 
The  preamble  to  the  statute  also  indicates  that  the  regular 
calling  was  and  had  been  a  favored  one  :  "  Forasmuch  as  of 
long  and  ancient  time  by  divers  hundreds  years  there  have 
been  used  within  the  City  of  London  and  Liberties  thereof, 
certain  Freemen  of  the  city  to  be  selected  out  of  the  Com- 
panies and  ^lysteries  whereof  they  are  free  and  Members, 
and  the  same  persons  to  be  presented  at  least  by  six  approved 
and  known  honest  persons  of  the  same  Mystery  to  the  Lord 
Mayor  of  London  for  the  time  being,  and  to  the  Aldermen 
his  Brethren,  and  to  be  recommended  by  such  Presentors 
to  be  persons  for  their  known  approved  Honesty,  Integrity, 
and  Faithfulness,  Persons  meet  for  to  be  Broker  or  Brokers." 
It  was  not  until  the  latter  part  of  the  seventeenth  century, 
when  the  East  India  Company  came  prominently  before  the 

»  See  also  2Crabb'8  Dig.  of  fcjtiit.,  12  Moo.  530,  543.      There  is  very 

tit.  "  Brokers,"  201.     There  were  hifjh  authority,    however,   for  as- 

a   class  of  persons   known  to  the  sertiug  that  the    term    jiroxciietce 

Romans,  who  were  deemed  ])iil)lic  does  not  occur  in  anyX<:itin  author 

officers,   ainl  who  united  tiie  func-  bcfoio  the  first  century  after  C'hiist. 

tions  of  bankern,  exchangcrH,  Urn-  See  Freund's  Latin  Dictionary,  re- 

kers,  comniissionerK,  and   nnliiricH  vised   Ity   I^ewis   and  Siuirt,  where 

all  in  one,  under  tlie  description  of  proxt^nctic  is   tlius  given:   "negoti- 

jiriixinpttt.     (Whar.,  Law  Dirt.,  tit.  ator,    factor,    bntker,    agent.   Son. 

"Hrokers;"  Story  on   ,\g.  Oth  ed.  Ep.   IHt;    Mart.    10,  3,   4;  Dig.  60, 

8.30,  Dig.   Lib.  ."A  lit.   14,  ch.  3.)  14,3." 

Spelman,  cited  in  Gibbons  vs.  Kulo,  ^  1  Jac.  L  c.  21,  1604.  ' 


4  Stock-brokers  and  Stock  Exchanges. 

public/  that  trading  or  speculating  in  stock  became  an  es- 
tablished business  in  England  ;  and  the  term  "  Broker," 
wliich  had  then  a  "well-understood  meaning,  was  promptly 
transferred  to  those  persons  who  wei'e  employed  to  buy  or 
sell  stock  or  shares,  and  who  thenceforth  became  known 
as  "Stock-brokers."  In  1692,  William  the  Third  having 
adopted,  for  the  lirst  time  in  England,  the  system  of  raising 
funds'^  for  governmental  purposes  by  creating  a  national 
debt,  speculations  in  the  "funds  "  and  the  shares  of  the  East 
India  Company  at  once  became  general;^  and  in  1097  the 
Brokers  and  Stock-jobbers,  to  borrow  from  the  language  of 
the  statute  passed  in  that  year,  had  been  guilty  of  such  "  un- 
just practices  and  designs  "  in  selling  and  discounting  tallies, 
bank  stock,  bank  bills,  shares  and  interest  in  joint  stock,  that 
it  became  necessary  to  pass  a  stringent  act,  by  which  no 
persons  except  regularly  sworn  appointees  were  permitted  to 
act  as  Brokers ;  and  the  latter  were  compelled  to  keep  a 
register  in  which  all  contracts  were  to  be  entered  within 
three  days  after  they  were  made,  and  their  compensation 
was  fixed  at  ten  shillings  per  centum.*  And  Best,  C.  J.,  in 
commenting  upon  this  statute,  says:  "The  statute  8  and  9 
"William  III.,  ch.  20,  by  which  the  first  government  loan  was 
raised,  speaks  of  a  new  description  of  '  Brokers ' —  persons 
employed  in  buying  and  selhng  tallies,  the  government  se- 
curities of  those  days :  these  have  since  been  called  Stock- 

1  This  company -was  incorporated  1688  (Tit.  "Funds,"  Cyclopedia 
by  Queen  Elizabetli  in  1600.  of  Com.  [Waterston]  ). 

2  The  system  of  obtaining  money  3  Francis's  Clironicles  and 
for  government  purposes  by  loans  Ciiaracters  of  the  Stock  Exchange, 
is  said   to  have  originated  in  the  24. 

fifteenth   century   in    Venice.      It  ♦  8  &  9  Wm.  III.  c.  32,  1697,  con- 
was  next  adopted  by  Holland,  and  tinued  by  11   and    12  Wm.   III.  c. 
was     introduced     into      England  13. 
shortly   after    the    Revolution    of 


Oriirin  of  Stock-brokers  and  Stock   Exchanges.       5 

brokers.'' '     Several  other  similar  statutes  were  passed  in  the 
subsequent  reigns  of  Anne  and  George.'^ 

An  early  legal  author  (writing  about  the  year  1S13)  gives 
the  following  account  of  Stock-brokers,  which  is  interesting 
in  this  connection  :  "  Stock-brokers  are  persons  who  con- 
line  their  transactions  to  the  buying  and  selling  of  property 
in  the  public  funds  and  other  securities  for  money,  and 
they  are  employed  by  the  proprietors  or  holders  of  the  said 
securities.  Of  late  years,  owing  to  the  prodigious  increase 
of  the  funded  debt  of  the  nation,  commonly  called  the  stock, 
they  are  become  a  very  numerous  and  considerable  body, 
and  have  built,  by  subscription,  a  room  near  the  Bank, 
wherein  they  meet  to  transact  business  with  their  piincipals, 
and  with  each  other  ;  and  to  prepare  and  settle  their  pro- 
ceedings before  they  go  to  the  transfer-offices  at  the  Bank, 
the  South  Sea,  and  India  houses,  thereby  preventing  a  great 
deal  of  confusion  at  the  public  oHlces,  where  the  concourse 
of  people  is  so  great,  during  the  hours  of  transferring  stock, 
that  if  the  business  was  not  prepared  beforehand,  it  would 
be  impossible  to  transact  it  within  the  given  time."  ^  The 
whole  business  of  stock-jobbing  being  c(Mitrary  to  law,  ex- 
cept as  the  persons  acting  as  Brokers  wore  licensed,  under 
the  act  of  6  Anne,  ch.  10  ;  and  as  many  other  persons,  irre- 
spective of  the  requirements  of  the  statute,  acted  as  Stock- 
brokei-s  without  liaving  received  a  license  as  such,  a  ailver 
7/v^^A// was  given  to  each  licensed  liroker,  having  the  king's 
arms  on  one  sid(.*,  and  the  armsf  of  the  city  of  J.ondon  on  the 
reverse,  with  the  liroker's  name,  which  he  was  ordered  topro- 

>  GibboriH  VB.  Riilo,  1827,  \2  Moo.  Cvu.  I.  c.  IH,  171W  ;  ;i  «.i'(..  11.  r.  ;!1, 

53U  ;  4  HiiiK.  301.  17:iO  ;  7  (Jeo.  II. .-.  8,  173-1. 

''  6  .\iirje,  c.  10,  1707  ;   10  ibid.  »-.  »  IJeaw.  Ia>x.  .M.t.  .Inl  t-d.  020. 
19,  1711;  12  ibid.  Sut.  2,  c.  10  ;  0 


6  Stock-brokers  and  Stock  Exchanges. 

duce  upon  every  occasion  when  he  should  he  required  to 
show  his  qualification  ;  and,  to  give  further  publicity  to  the 
names  of  the  regular  Brokers,  a  list  of  the  licensed  Brokers 
was  annually  printed  by  the  order  of  the  Lord  Mayor  and 
Court  of  Aldermen,  which  was  hung  up  in  the  walks  of 
the  Royal  Exchange  and  in  Guildhall,  and  at  most  of  tlie 
reputable  coffee-houses  near  the  Exchange.  In  1708,  the 
year  after  this  act  was  passed,  the  Court  of  Mayor  and  Alder- 
men of  the  city  of  London,  who,  by  the  act  were  permitted 
to  license  brokers,  made  rules  and  regulations  for  the  govern- 
ment of  Brokers,  and  by  virtue  of  which  every  person,  pre- 
viously to  his  being  admitted  a  Broker,  Avas  required  to  enter 
into  a  bond,  conditioned  for  the  proper  performance  of  his 
employment,  to  the  Mayor,  Commonalty  and  citizens  of 
London,  and  also  to  take  an  oath  to  faithfully  execute  and 
perform  the  office  and  employment  of  a  Broker  without  fraud 
or  collusion.  The  form  of  the  bond  and  oath  may  be  found 
in  the  report  of  a  case  arising  in  1816,  when  these  rules  were 
still  in  force.^  The  Brokers  had  some  years  previously  (about 
the  year  1698,  vide  c.  IX.)  left  the  Royal  Exchange  and  lo- 
cated their  business  in  Change  Alley .^  By  an  act  passed  in 
1870,3  called  the  "  London  Broker's    Relief  Act,"  the  re- 

1  Ex    parte    Dystev,    1   Mer.   15o;  inscription,    "Morgan      Vaughan, 
Clarke  vs.  Powell,  4  B.  &  Ad.  84G.  Hatter,  Hosier,  and    Stock-broker, 

2  "  Jonathan's  "  Cofifee-house,  in  No.  7  Finch  Lane,  Cornhill,  Lon- 
Chauge  Alley,  the  general  mart  for  don,"  from  which  it  would  appear 
Stock-jobbers,  was  the  i)recursor  of  that  Stock- brokers  and  jobbers 
the  present  Stock  Exchange  in  could  combine  their  callings  with 
Capel  Court. — Addison  in  Sir  R.  other  forms  of  business.  Galig- 
De  Coverley.  Among  the  relics  of  nani's  Messenger,  Jan.  1,  1891. 
these  earlier  days,  collected  by  a  ^  o-j  &  34  Vict.  c.  60.  In  the 
Stock  Exchange  antiquarian,  is  year  1884  the  last  remnant  of  the 
an  illustrated  card  or  advertise-  city's  authority  was  swept  away, 
ment  plate,  whereon  a  shield  is  47  Vict.  c.  3.  Vide  c.  IX. 
suspended   from   a   tree   with    the 


Orisriii  of  Stock-brokers  and  Stock  Exchanges.       7 

strictions  and  guards  which  were  formerly  placed  upon 
Stock-brokers  were  removed,  and  the  jurisdiction  of  the 
Court  of  Aldermen  over  Brokers  ceased.  The  effect  of  this 
act  is  practically  to  enable  any  person  to  exercise  the  call- 
ing of  Broker  in  London,  outside  of  the  Stock  Exchange  ; 
and  this  result  seems  to  be  justly  deplored  in  the  Report  of 
the  Royal  Stock  Exchange  Commission  presented  to  Parlia- 
ment in  ISTS.^ 

The  advantage  of  employing  Brokers  as  intermediaries,  in 
the  purchase  and  sale  of  property,  seems  to  have  been  early 
recognized  among  the  merchants ;  and  a  very  old  writer  on 
the  law  merchant  says,  "  It  is  an  old  proverb,  and  very  true, 
that  between  what  will  you  but/  ?  and  what  will  you  sell  ?  there 
is  twenty  in  the  hundred  differing  in  the  price,  which  is  the 
cause  that  all  the  nations  do  more  effect  to  sell  their  commod- 
ities with  reputation  by  means  of  Brokers  than  we  do ;  for 
that  which  seems  to  be  gotten  thereby  is  more  than  double 
lost  another  way.  Besides,  that  by  that  course  many  differ- 
ences are  prevented  which  arise  between  man  and  man  in 
their  bargains  or  verbal  contracts ;  for  the  testimony  of  a 
sworn  Broker  and  his  book  together  is  sufficient  to  end  the 
same."  ^ 

The  Venetians,  says  Malynes,  had  an  office  called  3fe8- 
sacaria  (Messageria  ?j,  consisting  only  of  Brokei's  who  dealt 
between  man  and  man ;  "  and  in  Spain  they  are  of  such  esti- 
mation that  they  ride  on  horseback,  upon  their  foot-cloths  ; 
and,  having  the  invoices  of  merchants'  gootls,  they  will  deal 
for  great  matters  at  a  time,  against  the  lading  of  the  fleet 
from  Nova  Espagna,  and  the  islands  of  the  AVest  Indies,  to 
be  paid  partly  ready  money  and  partly  at  the  return  of  the 

»  See  i>OBt,  p.  017.  ^  .Mai.  Lex  Mer.  143(162:2). 


8 


Stock-brok(Ms  and  Stock  Exchanges. 


said  fleet ;  and  these  afterwards  let  you  understand  their 
merchant. "  ' 

The  oriirin  of  stock-certificates — dealings  in  ^vhich,  at  the 
present  date,  constitute  the  main  business  of  Stock-brokers — 
cannot  in  England  be  satisfactoril}'  traced  beyond  the  middle 
of  the  seventeenth  century.  Such  species  of  property  was 
altogether  unlaiown  to  the  law  in  ancient  times,  nor,  indeed, 
was  it  in  usage  and  practice  until  a  short  period  antecedent  to 
the  passage  of  the  Bubble  Act  in  the  reign  of  George  the 
First.'' 

Although  it  is  fully  established  that  mercantile  or  com- 
mercial corporations  existed  among  the  Romans,^  and  though 


1  Mai.  Lex.  Mer.  143. 

2  Garrard  vs.  Hardej',  5  Man.  & 
G.  471,  483. 

3Ang.  &  Ames  on  Corps,  (lltli 
ed.)  §40:  "A  Collegium  Mercato- 
rum  existed  at  Rome  493  B.  C.  ; 
but  the  modern  bourse,  from  the 
Latin  bursa,  a  purse,  originated 
about  the  fifteenth  century. 
Bourges  and  Amsterdam  contend 
for  tlie  honor  of  having  erected  the 
first  bourse.  The  Paris  Bourse 
was  erected  in  1808"  (Johnson's 
NewUniv.  Cyclop,  tit.  "  Bourse  "). 
"  A  Rome,  malgre  que  le  commerce 
n'y  flit  pas  en  grande  consideration, 
nous  trouvons  ce  mOme  usage  pub- 
liquement  pratique.  Tite  Live 
nous  apprend,  en  effet,  qu'en  I'an 
259  de  sa  fondation,  sous  le  con- 
Bulat  d'Appius  Claudius  et  de  Pub- 
lius  Servilius,  on  construisit  un 
vaste  Edifice,  dont  les  vestiges  por- 
tent encore  le  nom  de  Loggia,  et 
qui,  sous  la  denomination  de  Col- 
legium Mercatorum,  avaitune  des- 
tination analogue  a  celle   de   nos 


bourses  actuelles  "  (Droit  Commer- 
cial, "  Bourses  de  Commerce," 
par  Bedarride).  But,  according  to 
Livy  (ii.  27),  the  Collegium  Merca- 
torum does  not  belong  to  this  pe- 
riod. Livy  says  that  when  the  con- 
suls were  disputing  which  of  them 
should  have  the  honor  of  dedicat- 
ing a  temple  to  Mercury,  the  ques- 
tion was  referred  to  the  people; 
and  the  Senate  decreed  that  which- 
soever of  tlie  consuls  should  be 
chosen  should  also  form  a  "  Colle- 
gium Mercatorum,"  or  association 
of  corn-dealers,  to  help  him  and 
the  priest  in  religious  and  mercan- 
tile matters  related  to  the  temple. 
But  the  plan  fell  through,  and  it 
does  not  appear  that  the  "Colle- 
gium" was  ever  formed;  nor  that 
it  would  have  had,  if  formed,  any- 
thing but  a  religious  significance. 
Accordingly,  the  above  citations 
seem  to  be  unfounded.  The  near- 
est approach  to  a  Stock  Exchange 
membership  in  ancient  times  was 
the  right  of  ownership  in  a  "gild" 


Origin  of  Stock-brokers  and  Stock  Exchanges.       9 

much  light  has  been  thrown  upon  the  character  and  mode 
of  conducting  these  bodies,^  there  is  an  utter  dearth  of  in- 
formation respecting  the  form  and  manner  by  which  owner- 
ship in  the  corporate  property  was  attested  and  estabhshed. 
The  Roman  hiw  required  three  persons  to  oiganize  a  cor- 
poration ;*  and  as  each  body  had  at  least  that  number  of 
members,  if  not  more,  it  would  seem  but  natural  that  a  cer- 
tificate, or  some  other  substantial  muniment  of  title,  should 
have  been  issued  by  the  corporation  to  its  respective  members, 
in  which  the  proportion  of  interest  of  each  in  the  capital  or 
corporate  property  of  the  association  appeared.  But  whether 
a  certificate  was,  in  fact,  issued,  and,  if  so,  was  regarded  as 
property  capable  of  sale  or  other  negotiation,  and  of  vest- 
ing in  the  representatives  of  the  owner,  on  his  decease,  or 
"whether  the  corporations  were  all  of  the  nature  of  guilds  con- 
ferring upon  the  members  mere  per  social  rights — all  of  these 
questions  seem  now  to  be  incapable  of  solution  ;  and  the 
Koman  law,  which  sheds  such  floods  of  light  upon  commercial 
subjects,  apparently  leaves  the  above  matters  in  total  darkness. 
In  England  stock-certificates  were  not  introduced  into 
the  courts  of  law  for  many  years  after  they  had  become  es- 

or  "guild."     A  person's  "£/j7(Za"  Though  in  Eonie,  it  seems,  corpo- 

that  is  his  right  :is  a  niembei- of  the  rations   did    not   require   charters 

gihl  is  treated  as  an  object  of  own-  from  tlie  State,  the  hitter,  by  vir- 

ership.      With  the  consent  of  the  tue  of  its  police  power,  suppressed 

Court  (evolved  out  of  the  fratern-  those  which  appeared  tobechinger- 

ity)a  man  miglit  give  or  sell  it.     If  ous,    mostly    those  of   a   ]u>litical 

he  be  dispossessed  of  it  then  it  will  character.     Iti  order  to  doterinino 

descend   to   his  heir.       History  of  wliethersuch  a  corporation  existed, 

P^nglisii  Law  (  Pollock  «i'  Mailland),  the    words    tns  /(iriunt    coUcijium 

vol.  1  (id  ed.),  p.  C<;8.  were  used.     Hut  that  acorporation 

'  Urowu's  Lect.  Civ.  Law  (2<led.),  could  exist  with  only  one  member 

HI.  left  Is  well  settle.l  (1.  7,  '-',  I).  '.\,  4,). 

'^  Tti  a  fariunt  collegium,  Ang.  «fe  <iaiidHmit  Pandects,  1.71,  1;   Wind- 
Ames   on    Corps.    (11th    ed.);   Or-  Bcheidt,  L  CO,  3;  ArndtB,  U,  J. 
tolan's     Hist.     Itoman     Law,    (WM». 


10  Stofk-luokcrs  and  Stock  Exeliaiiges. 

tablished  in  the  mercantile  coiiununity  ;  for  Lord  Mansfield, 
in  1770/  in  a  case  -wherein  it  was  contended  that  such  cer- 
tificates were  moiieij,  in  deciding  against  that  view,  said  : 
"  This  is  a  nein  species  of  property  arisen  within  the  compass 
(fa  few  years.  It  is  not  money."  -  The  Bubble  Act  ^  having 
been  repealed/  it  was  held  ^  that  the  formation  of  a  company, 
the  stock  in  which  should  be  transferable,  was  not  an  offence  at 
common-law.     And  this  doctrine  was  subsequently  affirmed.* 

A  Stock  Exchange  or  Bourse,  in  the  sense  in  which  it  is 
considered  in  this  work,  is  also  a  creation  of  modern  times. 

An  Exchange  was  erected  in  Coi-nhill,  Londc^n,  in  1571, 
but  it  was  used  exclusively  by  dealers  and  Brokers  in  mer- 
chandise. This  structure  was  destroyed  in  the  great  fire  of 
1666 ;"  but  it  was  not  until  several  years  after,  when  it  was 
rebuilt,  that  the  ]3rokers  in  funds  and  stock  were  assigned  a 
portion  of  the  building  for  the  transaction  of  their  business. 

In  1698  the  Stock-jobbers,  annoyed  by  the  objections  made 
to  their  remaining  in  theKoyal  Exchange,  and  finding  their 
numbers  seriously  increased,  removed  to  Change  Alley,  a 
large  and  unoccupied  space,  where  extensive  operations  might 
be  carried  on.^ 

In  the  United  States  there  seems  to  be  no  trace  of  a  Stock 
Exchange  until  about  the  beginning  of  the  present  century, 

1  Nightingale    vs.     Devisme,     5  'Johnson's  New  Univ.   Cyclop. 

Burr.   2589.  tit.  "  Stock  Exchange." 

-  To  same  effect,  Jones  vs.  Biin-  *>  Francis's  Chronicles  and  Char- 
ley, 1  East.  1.  acters    of     Stock    Exchange,    24. 
3  6  Geo.  I.  c.  18.  The  "cannibals  of  Change  Alley" 
^G  Geo.  IV.  c.  91.  is  a  name  Lord  Chatham  once  ap- 
6  Garrard  vs.  Hardey,  5  Man.  and  plied  to  the  Stock-jobbers.     Galig- 
Q.  471.  nani's    Messenger,    Jan.    1,    1891. 
6  llarrison  vs.  Heathorn,  6  Man.  See  also  Report  of  Royal  Stock  Ex- 
and  G.  81;   1  Pars.  Con.  (6th  ed.)  change    Commission,    July,    1878, 
144  and  post,  p.  971. 


Orisriii  of  Stoek-brokei's  aud  Stock  Exebau2:es.     11 

at  which  time  there  existed  in  Philadelphia  a  Board  of  Stock- 
brokers, possessing  a  forinal  organization  and  regular  consti- 
tution, which  the  Brokers  in  New  York,  in  1817,  used  as  a 
model  in  framing  the  rules  of  their  own  Exchange.^ 

Although  there  is  in  the  archives  of  the  Xew  York  Stock 
Exchange  a  document  bearing  date  May  IT,  1792,  signed  by 
a  number  of  Brokers,  in  which  it  is,  infer  alia,  stated  that 
"  "We,  the  subscribers,  Brokers  for  the  purchase  and  sale  of 
public  stock,  agree  to  do  business  at  not  less  than  one  fourth 
of  one  per  cent.,"  no  organization  appears  to  have  been 
formed  in  the  city  of  Xew  York  until  the  year  1817,  when 
a  constitution  was  adopted,  which  is  no  longer  in  existence, 
it  having  been  destroyed  in  the  great  fire  of  1835.^ 

It  appeare  that  in  the  beginning,  the  dealings  of  the  Stock- 
brokers in  this  country  wei-e  confined  to  speculations  in  Con- 

^  Medbery's  Men  aud  Mysteries  York  dealers  iu  public  stock  met 

of  Wall  Street,  280.  together  iu  a   Broker's  office,  and 

*  "  The   earliest    annals   of    the  signed   their   names,  in   the   bold, 

New   York    Stock    Exchange    are  strong  hand  of  their  generation,  to 

meagre,    the    fire   of    1835   having  an  agreement  of  the  nature  of  a 

destroyed  the  record  of  the  cousti-  protective    league.      The    date    of 

tution  adopted  in  1817,  the  date  of  this  curious  paper  is  May  17,  1792. 

its  first  regular  organization.      A  The  volume  of  business  of  all  these 

tablet  in  the  wall  of  the  present  primitive  New  York  brokers  could 

room    recites   that    the    Exchange  not  have  been  much  above  that  of 

was  founded    in  1792,  but  the  evi-  even  the   poorest   first-class   Wall 

dence  of  that  exists  only  in  a  doc-  Street   house    iu    our    time.      The 

uroent  still    preserved  among  its  lievolutionary     '  shinplasters,'    as 

archives"  (Johnson's  New  I'niv.  the  irreverent  already  styled  them, 

Cyclop,    tit.    "  Stock    Exchange,"  were  spread  over  tlie  land  in  such 

by  Stnjng  Wad.sworlh).  plenty  that   there   were  a  hundred 

The  following  account    is   from  dollars  to  each  inhabitant.     Some- 

Medl>ery'8    Men  and   Mysteries  of  thing  was  to   bo  made,  therefore, 

Wall       Street,       28C:  "...   when  from  llie  fiuctuations  to  wliidi  they 

Wasiiington    was     President,    and  were    liable.      Indeed,  one    of    the 

Continental    money    was   worth   a  greatest  lirokcr  firms  of  subseiiiuMit 

trifle    more   hh   currency   than    aH  years  derived  ilx  cajiitul  from  the 

waste    paper,    some    twenty    New  lucky    speculations    of    its    «enlor 


12  Stock-brokers  and  Stock   Exchanges. 

tinental  money  ;  but  when,  in  1812,  the  United  States  gov- 
ernment issued  Treasury  notes  and  negotiated  loans  to  the 
amount  of  many  millions'of  dollars,  the  dealings  embraced 
all  these  securities,  beside  operations  in  the  stocks  of  banks, 
which  were  being  rapidly  foniicd  in  all  j)arts  of  the  country. 
From  the  year  1820,  when  the  real  history  of  the  New  York 
Stock  Exchange  may  be  said  to  have  commenced,  it  has 
gone  on  steadily  increasing  in  its  members,  power  and  in- 
fluence, until  to-day  it  can  be  safely  affirmed  to  be  the  most 
powerful  organization  of  the  kind  in  the  world  ;  and  by 
forming  a  mart  where  all  kinds  of  securities  can  be  promptly 
converted  into  cash,  it  has  largely  contributed  to  the  devel- 
opment and  wealth  of  the  country  by  encouraging  and  sus- 
taining our  great  railroad  systems,  which  have  brought  all 
parts  of  the  Republic  into  a  closer  relation  to  each  other,  and 
firmly  strengthened  the  union  and  prosperity  of  the  States. 

member  in  this  currency.  "The  dealers  met  in  the  room  of  an  as- 
war  of  1812  gave  the  first  genuine  sociate,  and  voted  to  send  a  dele- 
impulse  to  speculation.  The  gov-  gate  over  on  the  stage  line  to  in- 
erninent  issued  sixteen  millions  in  vestigate  the  system  adopted  in  the 
Treasury  notes,  and  pat  loans  rival  city.  Tiie  visit  was  success- 
amounting  to  one  hundred  and  ful;  and  the  draft  of  a  constitution 
nine  millions  on  the  market,  and  by-laws,  framed  from  that  of 
There  were  endless  fluctuations,  the  Philadelphia  Board,  received 
and  the  easy-going  capitalisls  of  the  final  approbation  of  a  sufficient 
the  time  managed  to  gain  or  lose  number  of  the  brokers  to  enable 
handsome  fortunes.  Bank  stock  the  New  York  Stock  Exchange  to 
was  also  a  favorite  investment,  become  a  definite  fact.  Three 
An  illustration  of  one  of  the  years  after,  on  the  21st  of  Feb- 
sourcos  of  money-making  to  ruary,  1820,  this  preliminary  code 
Brokers  at  this  period  is  found  in  of  rules  received  a  thorough  revi- 
the  fact  that  United  Slates  6's  of  sion,  and  the  organization  was 
1814  were  at  50  in  specie  and  70  in  strengthened  by  the  accession  of 
New  York  bank  currency.  some  of  tlie  heaviest  capitalists  in 
"  In  181(5  one  could  count  up  the  city.  Indeed,  with  1820,  the 
two  hundred  and  eight  banks  with  real  history  of  the  Exchange  may 
a  capital  of  $82,000,000.  .  .  .  "One  properly  be  said  to  commence." 
day  in  1817,  the  New  York  stock- 


Legal  Nature  of.  13 


Chapter   II. 

LEGAL  NATURE  OF  STOCK  EXCHANGES  ;  CHARACTER  AND 
INCIDENTS  OF  MEMBEUSHir  THEREIN  ;  AND  RULES  AND 
REGULATIONS  THEREOF. 

/.   Organization  of  Stock  and  other  Exchanges. 
11.   General  Legal  Nature  of  Unincorporated  Stock  ^Ex- 
changes. 

III.  Stock  Exchange  not  a  Partnership. 

IV.  Nor  a  Corporation  or  Incorporated  Joint-stock  Asso- 

ciation. 
Y.  Rights  of  Members  in  Property  Held  l>y  Non-inco^'- 
porated  Stock  Exchanges, 
yj.  Liability  of  Members  for  Debts.,  etc. 
y I f.  Suits  by  and  against  the  Stock  Exchanges, 
yi II.  Ruhs  and  Regulations  of  Stock  Exchanges, 
{n.)    Gciii'ral  Poirer  to  Make  Rules. 
(Ji.)    Pdicrr  of  Suspension  (tnd  Exjuilsimi. 
('•.)   Rule  Gii'ing  Members  of  Exchange  Lieu  on  Proceeds 
of  Defaulting   Members,  "■  Seats,"  ete.,  in  Pref- 
erenre  to  other  Creditors,  not  Illi'gnl. 
('/.)    Stnrk  KxeJiiinge  ritiinot  Tnke  CiHjniziinee  nf  Jf<iffers 
Arising    outside    if,    (tnd    J)is<-oiinei-ted    irifh,    the 
Purpose  of  its  Orrj<ini::<ition. 
(«'.)    Members   not    lioum!   bij   Rules    u-hieh    J'reeent    7u'- 
eourse  to  Courts  of'  Lnie. 

/X.    Liability  of '"  Scats'^'  in  Err hanges  to  l^'g<il  Process. 
X.    LiidAlity  <f  "  SeatM"''  to  taxation. 
XL   (rratuity  Trust — Life  Insurance. 


14  Stock-brokers  and  Stock  Exchanges. 

I.  Organization  of  Stock  and  other  Exchanges. 

The  New  York  Stock  Exchange  is  an  unincorporated 
association  of  more  tlian  one  thousand  members  and  exists 
under  a  written  constitution.* 

The  constitution  vests  the  Avhole  government  of  the  Ex- 
change in  forty  members,  elected  in  classes,  to  serve  one, 
two,  three,  and  four  years,  together  with  the  president  and 
treasurer,  making  in  all  forty-two  persons,  called  the  "  Gov- 
erning Committee." 

All  applications  for  membership  are  publicly  announced 
by  the  presiding  officer,  with  the  names  of  the  proposer  and 
seconder.  Every  applicant^  must  be  twenty-one  years  of 
age  ;  and  any  wilful  misstatement  by  any  applicant  for 
admission,  upon  a  material  point,  shall,  in  certain  cases, 
subject  the  offending  party  to  loss  of  membership.  It  is 
now  a  prerequisite  to  admission  that  an  applicant  shall  be 
a  citizen  of  the  United  States. 

The  Constitution  of  the  New  York  Stock  Exchange  states 
(Art  I.)  its  object  thus  :  "  Its  object  shall  be  to  furnish 
exchange  rooms  and  other  facilities  for  the  convenient 
transaction  of  their  business  by  its  members,  as  Brokers  ;  to 
maintain  high  standards  of  commercial  honor  and  integrity 
among  its  members  ;  and  to  promote  and  inculcate  just 
and  equitable  principles  of  trade  and  business."  '^ 

*  People  ex  rel.  Lemmon  vs.  Feit-  case  of  People  ex  rel.  Lemmon  vs. 

ner,    167   N.   Y.    1-4;   Commercial  Feitner,  167  N.  Y.  4,  may  be  quot- 

Telegram    Co.  vs.  Smith,  47  Hun,  cd:    "The   principal   purposes   and 

494-497;    Matter    of    Renville,    46  objects  of  the  association   (the  New 

A.  D.  (X.  Y.)  37-42.  York  Stock  Exchange)  are  the  af- 

^  Art.    XIII.,  §1,    Const.    N.    Y.  fording  to  members  facilities  for  the 

Stock  Exchange.  transaction  of  business  as  Brokers 

^  The  following  extract  from  the  in  stocks,  bonds  and  other  securi- 

opinion  of  Bartlett,  J.,  in  the  recent  ties,  the  providing  for  a  convenient 


Organization  of  Stock  and  other  Exchanges.      15 

The  constitution  of  the  Kew  York  Stock  Exchange 
sets  forth  the  manner  in  which  the  business  shall  be  con- 
ducted, the  rates  of  commission  to  be  charged,  and  the  acts 
or  omissions  which  constitute  a  ground  for  dismissing  a 
member.  Such  of  these  provisions  as  are  important,  and 
which  have  been  made  the  subject  of  legal  adjudication, 
will  be  particularly  noticed  hereafter.' 

The  Philadelphia  and  San  Francisco  Stock  Exchanges 
(the  latter  known  as  the  Stock  and  Exchange  Board)  are 
unincorporated  associations  organized  in  the  same  manner 
as  the  'Sew  York  Stock  Exchange.^ 

The  Company  of  Associated  Stockbrokers  (of  San  Fran- 
cisco) is  a  corporation  without  capital  stock  composed  of 
the  members  of  the  unincorporated  association  (the  San 
Francisco  Stock  and  Exchange  Board)  and  was  formed  for 
the  purpose  of  purchasing  land  and  building  thereon  a  Stock 
Exchange  out  of  funds  contributed  by  the  Stock  and  Ex- 
change Board. ^ 

The  Chicago  Stock  Exchange  was  formed  as  a  voluntary 
unincorporated  association  in  the  year  1882  and  its  constitu- 
tion is  modelled  on  those  of  the  Xew  Yoi-k,  riiiladclphia 
and  San  Francisco  Stock  Exchan<;es.^ 

The  other  Stock  Exchanges  in  the  United  States  and 
Canada  are  those  which  have  i)cen  organized  as  unincor- 
poratetl  associations  (jr  coi-porations  in  the  following  cities, 

exehariKo  or  salesroom  for  the  trans-  LoiuJon    Stock    Exchaufies   will    I)c 

at-tion   of   such    IjiLsint-ss,    aiul   the  fouiui  in  tlu-  Appendix, 

maintenanf*;  of  rfctitudc  and  lion-  '  liV/f  Leech  vk.  Harris,  2  lircw. 

orable  dealinKH  between  it.-i  nicinlicrs  (Pa.)  .'57.'i,  57G;  Hyde  vs.  Woods,  2 

in     tlieir     businc-sH     trarwactions."  Sawy.  655,  alT'd  94  U.  S.  (4  Otto) 

See  abo   Beniheim  v.   Kcpplcr,  .31  5'J.3. 

Mi«*c    321 .  '  C'lute  VH.  Lovcland,  68  Cal.  254. 

'Full    copies    of    the    HuIch    and  H'lews    vs.  Janiieson,    182  U.S. 

Hcpilations  of  the  .New  ^'ork    and  402. 


16  Stock-brokers  and  Stock  Exchanges. 

viz. :  Boston,^  St.  Louis,  Baltimore,  Piltsburg,  Cleveland, 
Cincinnati,  Denver,  Detroit,  Kansas  City,  New  Orleans, 
Providence,  J^os  Angeles,  Indianapolis,  Richmond,  "Wash- 
ington, Montreal  and  Toronto. 

The  Chicago  Board  of  Trade  -  was  unincorporated  prior 
to  its  incorporation  by  special  act  on  l-'ebruarv  18,  1859.^ 
Although  the  Board  is  incorporated,  it  is,  in  effect,  but  a 
voluntary  association,  not  maintained  for  the  transaction 
of  business,  or  for  pecuniary  gain.^ 

The  New  York  Produce  Exchange  was  incorporated  by  spe- 
cial statutes  (L.  18G2,  c.  359  ;  L.  1867,  c.  30),  its  former  name 
having  been  the  "New  York  Commercial  Association."^ 
The  use  of  the  word  "  Produce ''  in  its  present  corj)orate 
name  does  not  restrict  its  dealings  to  agricultural  produce.* 

The  New  York  Cotton  Exchange  is  also  a  corporation 
formed  under  Laws  of  1871,  c.  365.® 

A  considerable  number  of  other  exchanges  and  mercantile 
associations  have  also  been  organized  either  as  corporations 
or  unincorporated  associations  and  transact  their  business 
in  the  city  of  New  York,  such  as  the  New  York  Mer- 
cantile Exchange,  the  Consolidated  Stock  and  Petroleum 
Exchange,  the  Coffee  Exchange,  the  Consolidated  ]\[ilk 
Exchange,  the  Clearing  House  of  the  New  York  Stock 
Exchange,  the  ConsoUdated  Clearing  House  of  New 
York,  the  Merchants  Credit   Exchange,  the  Metropolitan 


'The  Boston  Stock  Exchange  is  Trade,  80  111.  1.34;  Board  of  Trade 

an  unincorporated  association.  Cur-  vs.  Nelson,  162  111.  431. 
rier  vs.  Studley,  159  Mass.  17.  *  In   re   Haebler  vs.    New   York 

2  New    York,     etc..    Stock     Ex-  Produce  Exchange,  149  N.  Y.  419. 
change  vs.  Board    of    Trade,    127       '  In  re  Haebler  vs.  N.  Y.  Produce 

111.   153;    Priv.   Laws,  111.  1859,  p.  Exchange,  supra. 
13.  'People  ex  rel.  Khron  vs.  Miller, 

'  People  ex  rel.  Rice  vs.  Board  of  39  Hun,  557. 


Organizatiou  of  Stock  and  other  Exchanges.      17 

Mining  Exchange,  the  International  Mining  Exchange, 
the  Chamber  of  Conunerce,  the  Harlem  Board  of  Com- 
merce, the  Italian  Chamber  of  Commerce  in  New  York, 
the  Xew  York  Dry  Goods  Exchange,  American  Horse 
Exchange,  the  Board  of  Real  Estate  Brokers,  the  Real  Es- 
tate Salesroom,  the  Builders  Brokers  Exchange,  the  Build- 
ing Material  Exchange,  the  Choir  Exchange,  Crockery- 
Board  of  Trade,  Cut  Flower  Exchange,  Hay  Exchange, 
the  Lager  Beer  Brewers  Board  of  Trade,  Leaf  Tobacco 
Board  of  Trade,  Maritime  Exchange,  Mechanics  and  Traders 
Exchange,  National  Railway  Exchange,  Fruit  Exchange, 
Furniture  Board  of  Trade,  Furniture  Exchange,  Metal  Ex- 
change, Retail  Coal  Exchange,  Southern  California  Fruit 
Exchange,  and  the  U.  S.  Export  Association,  and  numerous 
similar  associations  and  corporations  ha-ve  been  organized 
in  the  other  chief  cities  of  the  Union, 

A  corporation  was  created  by  chapter  279,  New  York 
Laws  of  lb(j8,  called  the  "  Public  Exchange,''  the  name  be- 
ing subsequently  changed  to  the  Mutual  Trust  Company, 
having  power  to  establish  and  conduct  in  the  City  of  New 
York  an  Exchange  for  the  daily  meeting  of  merchants,  bank- 
ers and  trad(.'smen  and  for  the  convenient  delivery  and  in- 
terchange of  stocks  and  bonds  and  other  securities  between 
the  dealers  therein,  and  for  other  purposes.  The  corpo- 
ration was  judicially  dissolved  in  1884.' 

By  Laws  of  New  York  of  1886,  c.  333,  corporations  or 
associati<jns  may  be  organ iy.cd  to  foster  trade  and  commerce. 
This  statute   was  held   not  void  as  against  j)ublic  policy.^ 

'  People  VH.  Mutual  Trunt  ('(j.,  W>  ilua  charter,  see  Hrown  vs.  Mutual 

N    Y    11.     Ah  to  nature  of  Heats  in  Trunt  Co.,  '22  \V.  I).  .'{'.»'.. 
the    Exehaiine    (Ariieriean     Mining        '  UeyuoliiH    vh.    riuinijirs'   Ahhii., 

Sto<-k    Kxehatit'e)    orj;aiiiz<-<l    under  63  .\    Y.  S.  303. 


18  Stock-brokers  and  Stock  Exchanges. 

Under  the  "  Membership  Corporations  Law  "  of  New  York, 
Art.  XL,  there  may  be  formed  as  corporations,  boards  of 
trade  or  exchanges,  "  for  the  purpose  of  fosteriug  trade  and 
commerce,  or  the  interests  of  those  havingaooTmnon  trade, 
business,  financial  or  professional  interest,  to  reronn  abuses 
relative  thereto,  to  secure  freedom  from  unjust  or  unlawful 
exactions,  to  diffuse  accurate  and  reliable  information  as  to 
the  standing  of  merchants  and  other  matters,  to  procure 
uniformity  and  certainty  in  the  customs  and  usages  of 
trade  and  commerce,  and  of  those  having  a  common  trade, 
business,  financial  or  })rofessional  interest,  to  settle  differ- 
ences between  its  members  and  to  promote  a  more  enlarged 
and  friendly  intercourse  between  business  men."  ^ 

A  Stock  Exchange  by  the  name  of  "  The  Xew  Jersey 
Stock  Exchange  "  was  incorporated  by  an  act  of  the  Legis- 
lature of  that  state,  approved  March  16, 1875  (N.  J.  L.  1875, 
ch.  130).  The  act  does  not  show  where  the  Exchange  was 
to  be  located,  and  no  public  organization  seems  to  have 
been  effected  under  it.  Provision  is  now  made  by  ch.  138, 
Laws  of  JS'ew  Jersey,  1890,  for  the  incorporation  of  boards 
of  trade  or  chambers  of  commerce,  and  similar  associations. 
See  also  Stat.  Indiana  (1875,  ch.  5,  §§  1,  2  and  3),  providing 
for  the  organization  of  boards  of  trade,  commercial  or  real 


'  Although    such    a    corporation,  membership  or  mixed  corporation, 

having;   a   capital   stock,    and   dis-  and  the  provisions  of  sec.  33  of  the 

tributing  profits  amongst  its  mem-  latter  law,  as  to  conflicting  laws, 

bers,  might  come  within  the  defini-  would  render  its  organization  under 

tion  of  a  Stock  Corporation  (Gen.  the  Membership  Corporations   Law 

Corp.  Law  of  X.  Y.   §  2)   and  be  sufficient;  although  such  a  corpora- 

therefore  required  at  first  sight  to  tion  organized  under  a  law  repealed 

organize   under   the   Business   Cor-  by    the    Membership    Corporations 

porations  Law,  it  is  submitted  that  Law  is  not  governed  by  the  latter, 

the  reference  to  such  a  corporation  §   131, 
in  sec.  1  of  the  Gen.  Corp.  Law,  as  a 


Organization  of  Stock  and  other  Exchanges.      19 

estate  exchanges,  chambers  of  commerce,  or  other  com- 
mercial organizations. 

Corporations  may  be  formed  for  a  like  purpose  in  Cali- 
fornia (^  591,  Pomeroy's  Civ.  Code),  and  the  statutes  of 
Pennsylvania  (P.  L.  June  10,  1S93,  417)  and  of  Wisconsin 
and  Kansas  also  provide  for  the  organization  of  boards  of 
trade  and  business  exchanges.  The  Pittsburgh  Stock  Ex- 
change was  held  entitled  to  a  charter  of  incorporation  under 
the  Corporation  Law  of  1ST4,  enabling  corporations  to 
organize  for  "trade  or  commerce.''^  Some  of  the  States 
however  prohibit  such  organizations.  In  Louisiana  cor- 
porations for  mercantile,  or  commission  brokerage,  stock- 
jobbing, or  exchange  business  are  prohibited,  and  in 
Connecticut,  corporations  for  dealing  in  bonds,  notes  or 
other  evidences  of  debts,  cannot  be  organized. 

The  Company  of  Associated  Stock-Brokers  (San  Fran- 
cisco) is  a  corporation  composed  solely  of  the  voluntary 
association,  supi^a} 

Nearly  all  of  the  Stock  Exchanges  organized  in  the  United 
States  are  unincorporated  associations,  whilst,  on  the  other 
hand,  the  majority  of  the  Produce  Exchanges  have  been 
formed  as  corporations. 

Although  we  have,  in  this  subdivision,  given  a  reference 
to  the  principal  Produce  Exchanges,  this  chapter  will 
chiefly  treat  of  the  legal  nature,  character  and  incidents, 
and  the  rules  and  regulations  of  unincorporated  Stock  Ex- 
changes. P^or  a  more  extended  consideration  of  the  nature 
and  incidents  of  Produce  Exchanges,  the  reader  is  referred 
to  Messrs.  Bisbee  and  Simonds'  "  T^w  of  the  Produce  Ex- 


'  Rf  PittsburKh  Stork  Exchange,        '  Clute    vs.     Loveland,    OS    Cal. 
26  I'itU.  L.  J.  N.  S.  308.  254. 


20  Stock-brokers  and  Stock  Exchanges. 

change,"  and  to  the  American  and  English  Enc.  of  Law 
(2d  ed.),  and  the  Cn'c.  of  Law  and  Procedure. 

II.    General    Legal    Nature    of    Unincorporated     Stock 
Excliauges. 

A  voluntary  association  of  persons,  like  the  New  York 
Stock  Exchange,  by  which  each  individual  Broker  is  enabled 
to  carry  on  his  separate  business,  under  regulations  made 
alike  for  the  protection  of  himself  and  his  Client  or  princi- 
pal, has  no  technical  name  or  place  in  the  law. 

Mr.  Justice  Daly,  in  describing  an  association  formerly 
known  as  "  The  Open  Board  of  Stock-brokers," '  an  organ- 
ization almost  similar  to  the  Stock  E.xchange,  said  that  it  was^ 
"  an  association  of  persons  engaged  in  the  same  kind  of  busi- 
ness, who  have  organized  together  for  the  purpose  of  estab- 
lishing certain  rules,  by  which  each  agrees  to  be  governed 
in  the  conduct  and  management  of  his  separate  transactions 
or  business."  And  the  New  York  Stock  Exchange  has  been 
judicially  described  as  "  a  voluntary  association  of  individ- 
uals united,  without  a  charter,  in  an  organization  for  the  pur- 
pose of  offering  to  the  members  thereof  certain  facilities  in 
the  transaction  of  their  business."^ 

It  is  purely  a  voluntary  association.^ 

'  This  body,  on  the  Sth  of  May,  47  Hun,  505;  Wilson  vs.  Telegram 

1869,  consohdated  \ntli  the  N.  Y.  Co.,  IS  \.  Y.  St.  Rep.   78;    Matter 

Stock  Exchange.  of  Renville,  46  App.  Div.  37. 

^  White  vs.  Brownell,  4  Ab.  Pr.        In     reference    to    Produce     Ex- 

(n.  s.)  162;  s.  c.  2  Daly,  329.  changes    it    was    held    in    Chicago 

=•  Belton  vs.  Hatch,  i09X.Y. 593;  Open  Board  of  Trade  vs.  French, 

People   ex  rel.  Lemmon    vs.    Feit-  61  111.  App.  349,  that  the  Chicago 

ner,  167  N.  Y.  1,    at  page  4.     See  Open  Board  of  Trade  being  a  pri- 

also  Bemheim  vs.  Keppler,  34  Misc.  vate    corporation    might    discrimi- 

321;  69  X.  Y.  S.  803.  nate  as  to  persons,  not  being  mem- 

*  Commercial  Tel.  Co.  vs.  Smith,  bers,  it  may  admit  to  its  floors  or 


Legal  Nature  of.  21 

So,  in  describing  a  similar  board  in  a  sister  city,'  the  court 
said  :  "  The  Philadelphia  Board  of  Brokers  is  not  a  corpora- 
tion. It  is  not  a  joint-stock  coni])any,  in  the  sense  in  which 
such  companies  are  regarded  by  the  English  law,  although  it 
has  a  large  amount  of  property  which  belongs  to  it  in  its  joint 
or  aggregate  capacity.  Such  ])rivate  associations  are  said 
not  to  be  partnerships  as  between  themselves,  whatever  may 
be  their  relation  to  third  jiersons.''  ^  "  The  Board  of  Brokers 
is  a  voluntary  association  of  persons  who,  for  convenience  in 
the  transaction  of  business  with  each  other,  have  associated 
themselves  to  provide  a  commonplace  for  the  transaction  of 
their  individual  business,  agreeing  among  themselves  to  pay 
the  expenses  incident  to  the  support  of  the  objects  of  the 
association,  in  which  each  for  himself,  at  stated  hours  of 
the  day,  and  for  his  individual  profit,  may  prosecute  his 
own  business,  and  enter  into  separate  engagements  with  liis 
fellow-members.  The  association  does  not  share  in  the 
losses  of  the  indi\'idual  associates  ;  each  member  takes  his 
own  gains,  and  individually  sustains  the  losses  incident  to  his 
engajrements." ^  The  Exchange  itself  transacts  no  business 
as  such  in  the  buying  and  selling  of  stocks.  The  business 
therein  transacted  is  that  of  tlic  indivicUial  menibers.'' 

gallcrj",  and  it  mifrht  therefore  ex-  interstate  conunerce  in  violation  of 

elude     a     member's     women     eus-  the  Anti-Trust  .\ct,  see  Hoplcins  vs. 

tomers.     Quiere:  Wliether  a  eorpo-  I'niled  States,  171  U.  S.  578. 

ration  can  be  admitted  to  member-  '  Leech  vs.  Harri.s,  2  Brews.  (Pa.) 

ship  in  such  a  corporation?     Live  .'371. 

Stock    Commis-sion    Co.    vs.    Live  '  The  court  cited  White  vs.  Hrow- 

Stock  Exehanfie,  143  111.  22.S.     A!-  neil,  A  Ab.  Pr.  (n.  s.)  31S;  Thomas 

though     the    busineHS    of    such     a  vs.  Kllmaker,  1  Pars.  Cjus.  (Pa.)  VKS. 

eorpffration    hsm    become    of    ;;reut  '  Leech  vs.  Harris,  supra;  White 

volume,    the    courts    are    not    em-  vs.    Hrowiiell,    .'5    .\1>.     Pr.    (n.    s.) 

powered   to  declare  their   markets  3 Is. 

public.      lb.     As   to    when    a    Live  *  People  ex  nl.  Leminon  vs.  Feit- 

8tock  Exchanf^c  is  not  engai'ed  in  m  r    lii?  V    ^'    I 


22  Stock-brokers  and  Htock  Exchanges. 

These  associations  have  some  elements  in  common  with 
corporations,  joint-stock  companies,  and  partnerships.* 

An  institution  lik'o  the  Stock  Exchange  is  an  anomaly  in 
the  law.  It  is  amphibious  in  its  nature  ;  for,  without  being 
either  a  corporation  or  a  partnership,  it  possesses  some  of  the 
characteristics  of  both.  Like  a  corporation,  it  has  perpetual 
being ;  and  in  this  respect  it  has  an  advantage  over  bodies 
politic,  for  the  charters  of  tlie  latter  generally  limit  their  ex- 
istence to  some  detinite  j)eriod  ;  whereas  the  Xew  York 
Stock  Exchange  can  preserve  its  organization  (as  it  has  since 
1817)  until  it  voluntarily  dissolves  itself.^ 

Is  the  Stock  Exchange  in  any  legal  sense  a  public  insti- 
tution, charged  with  public  duties  ?  The  question  has  arisen 
principally^  in  respect  to  the  right  of  such  exchanges  to 
control  the  publication  of  the  quotations  or  prices  reached 
in  dealings  on  its  floors.  In  Illinois  the  Supreme  Court,^ 
relying  on  the  doctrine  of  the  United  States  Supreme  Court 
in  Munn  vs.  Illinois,^  that  when  private  property  has  been 
devoted  to  a  jniblic  use  and  has  become  affected  with  a 
public  interest  it  ceases  to  hejtc/'isjyrivati  only,  and  is  sub- 
ject to  public  regulation,  held  that  the  Chicago  Board  of 
Trade,  an  incorporated  organization,  having  so  conducted  its 
affairs  for  many  years,  as  to  create  a  standard  market  for 
agricultural  products,  and  acting  in  combination  with  tele- 

*  Leech  vs.  Harris,  supra,  575,  App.  93.  See  also  Public  Grain  & 
576;  Belton  vs.  Hatch,  109  N.  Y.  Stock  Exchange  vs.  Western  Union 
593.  See  also  Hyde  vs.  Woods,  2  Tel.  Co.,  Circuit  Court  of  Cook 
Sawy.  655,  aff'd  94  U.  S.  (4  Otto)  County,  May,  1883,  17  Fed.  Rep. 
523.  830,    note;     Murphy    vs.    Chicago 

^  See  also  Thompson  vs.  Adams,  Board  of  Trade,  20  Chic.  L.  N.  59; 

93  Pa.  St.  55.  Wiley  vs.  Board  of  Trade,  14  Nat. 

*  New  York  and  Chicago  Grain  &  Corp.  Rep.  181,  and  note  to  17  Fed. 
Stock  Exchange  vs.  Chicago  Board  Rep.  828. 

of  Trade,  127  lU.  153,  rev'g  27  lU.        *94  U.  S.  113. 


Legal  Nature  of.  23 

graph  companies,  built  up  a  system  for  the  instantaneous 
and  continuous  indication  of  the  fluctuations  of  that  mar- 
ket, until  the  pubUc  and  all  persons  dealing  in  such  products 
had  conformed  to  such  system,  and  thus  such  market  quo- 
tations had  become  necessar}^  to  the  safe  conduct  of  busi- 
ness, this  system  had  become  affected  with  a  public  interest, 
and  the  Board  could  not  make  any  unjust  discrimination, 
in  furnishing  the  quotaticms,  between  persons  willing  to  pay 
therefor  and  to  conform  to  all  reasonable  rules.  This  deci- 
sion was  expressly  limited  to  the  facts  above  stated,  and  it 
was  admitted  that  the  Board  could  at  any  time,  at  its  own 
pleasure,  cease  the  collecting  and  publication  of  the  quota- 
tions entirely.  In  so  far  as  they  rule  to  the  contrary, 
either  expressly  or  by  implication,  the  decisions  of  the 
United  States  Circuit  Court  mentioned  in  the  footnote* 
must,  in  view  of  the  prior  decision  of  the  Supreme  Court  of 
the  United  States  in  Munn  vs.  Illinois,  supra,  and  of  the 
State  Supreme  Court  decision  just  cited,  be  considered  as 
overruled. 

But  the  Chicago  Board  of  Trade  will  not  be  compelled  to 
supply  its  quotations  to  a  "  bucket  shop."  ^ 

*  Metropolitan    Grain    Exchange  change   vs.   Board    of    Trade,    198 

vs.  Chicago  Board  of  Trade,  15  Fed.  111.  396. 

Rep.  847;  Bryant  vs.  Western  The  Board  of  Trade  and  tele- 
Union  Telegraph  Co.  (U.  S.  Cir.  Ct.),  graph  companies  may  require  that 
17  Fed.  Rep.  82.5;  Marine  Grain  and  persons,  to  whom  quotations  are 
Stock  Exchange  vs.  Western  Union  supplied,  should  sign  an  agreement 
Tel.  Co.  (U.  S.  Cir.  Ct.),  22  Fed.  not  to  ke^-p  a  bucket  shop.  SuUi- 
Rep.  2.3;  Board  of  Trade  v.  Christie,  van  vs.  Postal  Tel.  Co.,  123  Fed.  Rep. 
110  Fed.  Rep.  914.  See  also  valu-  411.  Such  an  agreement  is  not 
able  note  appended  to  Brj'ant  vs.  in  restraint  of  conmierce.  Boanl 
Co.,  17  Fed.  Rep.  S2.'5-S28.  vs.      Chri.stie,       121       Fed.      OOK. 

'Christie  St.  Commission  Co.  vs.  It  ha.s  been  recently  held,  how- 
Board  of  Trade,  94  III.  .'\pp.  229;  ever,  that  as  over  90  per  cf-nt  of  the 
Central     Stock      and    Grain     Ex-  transactioiui  on  the  Chicago  Board 


24  Stock-brokers  and  Stock  Exchanges. 

And  it  was  held  in  lioardof  Trade  of  the  City  of  Chicago 
vs.  Thomson  Commission  Co.,'  that  the  Board  had  only  the 
common  knv  i)roperty  right  in  the  quotations,  viz.,  till 
their  first  publication,  and  it  could  guard  against  subsequent 
publications  only  through  the  statutory  copyright.  In  that 
case  as  it  was  doubtful  whether  the  defendants  had  inter- 
fered with  plaintiff's  common-law  right  of  first  publication, 
a  preliminary  injunction  restraining  defendants  from  using 
the  quotations  was  denied  pending  the  taking  of  the  proofs. 

And  it  was  held  in  Cleveland  Telegraph  Co.  vs.  Stone,^ 
that  the  Board  may  assign  this  ]">roperty  right  (viz.,  the 
right  of  property  in  the  quotations  till  the  same  are  made 
over  to  the  public)  to  a  third  person  Avho  may  restrain  the 
unauthorized  distribution  of  such  quotations  before  publica- 
tion. 

In  ]^ew  York,  with  particular  reference  to  the  Stock 
Exchange,  the  decisions  have  been  uniformly  opposed  to 
the  Illinois  case  of  Xew  York,  &c..  Exchange  vs.  Board  of 
Trade,  sujjra,  and  have  answered  the  reasons  of  the  Illinois 
court.  In  the  principal  case,^  the  plaintiff  was  engaged  in  the 
business  of  collecting  upon  the  floor  of  the  New  York  Stock 
Exchange  quotations  of  dealings  in  stock  and  distributing 
such  quotations  to  its  customers.  The  Stock  Exchange 
threatening  to  oust  the  })laintiff  from  the  Exchange,  an  in- 
junction was  sought  to  restrain  such  action,  upon  the  ground 
that  the  Stock  Exchange  being  a  body  created  for  the  bene- 

of  Trade  are  gambling   ones,    the  Fed.  944;    Board  vs.    Kinsey,     125 

board    cannot   restrain    the   use  of  Fed.  72. 

its   quotations.     Board    vs.    Dono-  '  Board  of   Trade    vs.   Thomson 

van  Co.,  121  Fed.  1012.    To  same  Co.,  10.3  Fed.  902.     See  also  Board 

effect   Board   vs.    O'Dell  Co.,    115  vs.  Ex.,  121  Fed.  433. 

Fed.  574;  Christie  Co.  vs.  Board  of  ^  105  Fed.  794. 

Trade,  125  Fed.  161,  rev'g  s.  c.  116  ^Commercial    Telegram    Co.    vs. 

Smith,  47  Hun,  494. 


Le2:al  Nature  of.  26 

fit  of  the  public,  it  was  against  public  policy,  irrespective 
of  contract,  to  refuse  to  permit  the  plaintiff  to  enter  the 
Exchange  for  the  purposes  above  mentioned.  But  the  court 
refused  to  entertain  that  view,  saying  :  "  The  claim  that  the 
Stock  Exchange  has  no  right  to  exclude  the  Commercial 
Telegram  Company  from  its  floor  upon  the  ground  of  public 
policy  evidently  proceeds  upon  an  entirely  erroneous  theory. 
The  Exchange  is  a  private  association  ;  it  has  the  right 
to  admit  to  its  floor  whom  it  pleases;  it  obtained  nothing 
from  the  State  except  that  protection  which  the  law  affords 
to  every  citizen  ;  it  has  sought  no  special  privilege  and  ob- 
tained no  special  powers.  It  is,  therefore,  just  as  nmch  the 
master  of  its  own  business  and  of  the  method  of  conduct- 
ing the  same  as  any  private  individual  within  the  State. 
It  may  make  public  the  transactions  that  occur  within  its 
walls,  or  it  may  refuse  all  information  in  respect  thereto. 
Xo  matter  which  course  is  pursued,  so  long  as  it  violates  no 
law,  it  has  a  right  to  continue  its  business  as  it  pleases.^     It 

'  Matter  of  Renville,  46  App.  Div.  ropolitan    Grain    and    Stock    Ex- 

37;  Wilson  vs.  Telegram  Co.,  IS  N.  change  vs.  Board  of  Trade,  supra. 

Y.  St.  R.  78.  The  business  of  collecting  and  fur- 

A  related  cjuestion  to  that  dis-  nishing  commercial  new's  is  distinct 

cussed  in  the  text  is  the  duty  of  a  from    its    business    as    a    common 

telegraph    company,    as    a    public  carrier,  and  in  engaging  in  it,  the 

servant,  like  a  common  carrier,  to  company  is  in  the  .same  position  as 

furnish  the  quotations  collected  by  a  private  person  would  be  who  buys 

it  to  all  who  comply  with  its  condi-  and  sells  goods,  selling  to  one  and 

tioiLS,   without  discrimination.     As  refusing  to  -sell  to  another.     Brad- 

to  this,  qua-re  in  Matter  of  Renville,  ley    vs.    Western    Union    Tel.  Co., 

supra.     The    relations    which    tele-  Cincinnati     Connnercial      Gazette, 

graph  Companies  bear  towards  the  April  S,    1SS7,    17   Fed.   Rep.  834, 

public  may  be  such  as  to  prevent  note.     See,  however,  State  e.x  rel. 

any   such    discrimination.     Bryant  Telegraph   Co.   vs.    Bell   Telephone 

VB.  Western  Union  Tel.  Co.,  supra.  Co.,  36  Ohio  St.  "ilMJ,  where  it  was 

But  it  is  said:  "It  is  no  part  of  the  held  that  under  the  statute  of  that 

duty  of  the  t«-legrai)h  company  to  stati-,  a  telephone  <(jmpany  was  a 

transmit  such  information."     Met-  pultlic    servant    and    possessed    no 


26  Stock-brokers  and  Stock  Exchanges. 

may  give  its  quotations  to  one  man  and  deny  them  to  an- 
other." 

But  the  fact  that  the  business  at  a  particular  market, 
owned  or  conducted  by  a  private  corporation  or  a  voluntary 
association,  has  become  so  great  as  to  influence  the  commerce 
of  a  large  section  of  the  country,  or  more  or  less  largely  of 
the  whole  country,  does  not  permit  the  courts  to  declare  such 
markets  public  and  impressed  with  a  public  use,  or  to  apply  to 
it  any  rules  of  public  policy  peculiar  to  that  class  of  market. 
Markets  overt,  such  as  exist  in  England  are  unknown  here. 
If  the  magnitude  of  a  particular  business  is  such,  and  the  per- 
sons affected  by  it  are  so  numerous,  that  the  interests  of  so- 
ciety demand  that  the  rules  and  principles  applicable  to  pub- 
lic employments  should  be  applied  to  it,  this  would  have 
to  be  done  b}^  the  Legislature,'  The  court  distinguishes  the 
Case  of  New  York  and  Chicago  Grain  and  Stock  Exchange 
vs.  Board  of  Trade,  siijjra.'^ 

Although  the  last  cited  case  decided  that  a  public  inter- 
est attached  when  the  quotations  were  given  out,  Avhich 
entitled  the  applicants  to  receive  them  without  unjust  dis- 
crimination, it  nevertheless  held  that  the  Board  possessed  a 
property  right  in  the  quotations  before  publication  and  it  was 

right  to  discriminate  as  to  whom  it  Chicago  Live  Stock  Exchange,  143 

would    provide    with    instruments.  111.  210. 

A  telegraph  company  will  not  be  In  Russell  vs.  N.  Y.  Produce 
compelled  to  furnish  quotations  to  Exchange,  58  N.  Y.  Supp.  842,  the 
a  "bucket  shop."  Bryant  vs.  claim  was  made  that  the  business 
Western  Union  Tel.  Co.,  supra;  done  on  the  New  York  Produce  / 
Wiley  vs.  Board  of  Trade,  14  Xat.  Exchange  was  so  affected  by  a  pub- 
Corp.  Rep.  181.  See  also  National  lie  use  that  it  was  subject  to  judi- 
Tel.  News  Co.  vs.  Western  Union,  cial  regulation  at  the  instance  of  an 
119  Fed.  294;  Illinois  Commission  outsider,  but  no  evidence  to  sub- 
Co.  vs.  Cleveland  Tel.  Co.,  129  Fed.  stantiate  the  claim  was  produced. 
301;  Smith  vs.  Co.,  84  Ky.  664.  M27  111.  153.  See  also  Kiernan 
1  American   Live   Stock    Co.   vs.  vs.  Co.,  50  How.  Pr.  194. 


Legal  Nature  of.  27 

subsequently  held  *  that  the  furnishing  of  the  quotations  to  a 
customer  either  through  a  ticker  or  b}''  means  of  a  blackboard 
in  the  customers'  office,  not  being  a  universal  publication, 
was  not  a  publication  thereof,  and  therefore  when  defend- 
ants obtained  such  quotations  from  a  firm  who  purloined 
them  from  the  customers'  office  before  they  were  given  out 
to  the  press,  they  were  enjoined  from  taking  and  using  the 
reports  so  derived,  without  authority.  And  reasonable  reg- 
ulations may  be  made  by  the  Board,  and  therefore  when 
defendant  declined  to  comply  with  a  requirement  of  the 
Board  that  the  quotations  should  not  be  used  in  the  con- 
duct of  a  bucket  shop,  it  will  be  enjoined  from  recover- 
ing or  surreptitiously  acquiring  them,  and  the  defendant  can- 
not argue  that  the  complainant  Board  violated  the  "  bucket 
shop  "  statutes  without  very  clear  proof  that  gambling  trans- 
actions were  carried  on  in  pursuance  of,  and  not  in  violation 
of,  its  rules.^ 

The  recent  case  of  Board  of  Trade  vs.  Christie,  «?(/>;•«,  de- 
cided that  courts  cannot  by  their  decree  assume  the  initia- 
tive in  declaring  private  property  to  be  impressed  with  a 
public  use.  There  should  exist  first  the  condition  of  ex- 
pansion of  a  private  business  justifying  the  assertion  of 
a  public  interest  therein,  followed  by  legislative  recog- 
nition of  such  condition.  When  such  a  condition  arises, 
the  measure  of  the  public  control  is  limited  by  the  ex- 
tent of  the  public  interest,  and  the  making  of  regulations 
pertaining  thereto  is  of  legislative,  not  judicial,  cognizance. 
See  also  State  vs.  Associated  ]*ress,^  where  it  was  held  that 

'  Board  of  Trade  of  Chifa^o  vh.         'Hoard  of  Tradf- vs.  Christie,  1  1G 
Ha<lden-Knjll   Co.,  121    Fed.  1017.    Fe<l.  Oil. 
See  also    Hoard  vh.   Kllis.  \S2  Fed.        '  1.7.)  .Mo.  )1()  .a  p.   I'Jl. 
319;  Ex.  VH.  Gregory  (1«'JG;,  1  Q.  li. 
J  J7. 


28  Stock-brokers  aiul  Stock  Kxchaiiflres. 

to  brm<^  the  pi-oporly  (»r  Imsincss  of  ;i  pei-soii  under govern- 
menttil  control  there  must  he  an  exercise  of  the  police 
power.  The  conclusic^ns  reached  in  Munn's  Case,  supra,  are 
very  ably  criticised  in  this  case. 

III.  Stock  Exchange  not  a  Partnership. 

But  the  Stock  Exchange  does  not  come  within  the  legal 
definition  of  a  partnership.  The  general  rule  undoubtedly 
is  that  "no  partnership  or  2■was^  partnership  subsists  between 
persons  who  do  not  share  either  prolit  or  loss  and  who  do 
not  hold  themselves  out  as  partners.  Societies  and  clubs, 
the  object  of  which  is  not  to  share  profits,  are  not  partner- 
ships, nor  are  their  members,  as  such,  liable  for  each  other's 

acts."  ^ 

The  Stock  Exchange  exists  under  an  agreement  between 
its  members  to  pay  the  expenses  incident  to  the  support  of  a 
"Mart,"  in  which  each  for  himself,  at  stated  hours  of  the  day, 
and  for  his  individual  profit,  may  prosecute  his  own  busi- 
ness, and  enter  into  separate  engagements  with  his  fellow- 
members.  The  association  does  not  share  in  the  losses  of 
the  individual  associates ;  each  member  takes  his  own  gains, 
and  individually  sustains  the  losses  incident  to  his  engage- 
ments. The  organization  of  this  board  grew  out  of  a 
necessity  for  new  and  greater  facilities  for  exchange  and 
negotiation,  incident  to  the  rapidly  developing  interests  of 
the  country  and  the  increasing  number  and  value  of  its 
commercial  securities.- 

'  Lindley   on   Part.    (3d   ed.)   57.  of  Appeals  in  the  case  of  Belton  vs. 

See  also  edition  of  1893;  Belton  vs.  Hatch,   109  N.  Y.  593.  where  the 

Hatch,  109  N.  Y.  593;  Lafond  vs.  court,     through     Associate     Judge 

Deems,  81  X.  Y.  507-514.  Gray,  said: 

MVhite  vs.  Brownell,  3  Ab.  Pr.        "It  (The  New  York  Stock  Ex- 

(n.  s.)  318.     The  views  expressed  in  change)  cannot  be  said  to  be  strictly 

the  text  are  confirmed  by  the  Court  a  copartnership,  for  its  objects  do 


Not  a  Partnership.  29 

Although  it  may  possess  property  derived  from  the  pay- 
ment of  dues  or  fines,  such  property  is  a  mere  incident,  and 
not  the  main  ])urp<)se  or  object  of  the  association.  A  mem- 
ber has  no  severable  proprietary  interest  in  it,  or  a  right  to 
any  proportionable  part  of  it  upon  Avithdrawing.* 

There  are  no  profits  earned  to  be  divided  among  its  mem- 
bers, nor  are  there  any  losses  to  be  borne  arising  out  of  the 
acts  of  the  joint  body.'-  If  a  partnership,  the  death  of  one 
of  its  members  would,  ij^so  facto,  dissolve  it.^ 

In  the  case  of  Caldicott  vs.  Griffiths^  it  was  held  that  a 
society  called  "  The  Midland  Counties  Guardian  Society  for 


not  come  within  the  definition  of  may  be,  against  financial  irresponsi- 

one.     A  copartnership  results  from  bility.     Bernheim  vs.  Keppler,   34 

a  contract  between  the  parties  by  Misc.  321. 

which  they  agree  to  combine  their  '  Daly,  P.  J.,  in  Wliite  vs.  Brow- 
property  or  labor,  or  both,  in  some  nell,  4  Ab.  Pr.  (n.  s.)  191.  This 
common  enterprise  and  for  a  com-  subject  is  fully  treated,  post,  p.  33. 
mon  profit,  to  be  shared  in  the  pro-  '  Belton  vs.  Hatch,  109  X.  Y. 
portion  stated  in  their  agreement.  593;  Bernheim  vs.  Keppler,  34 
The  objects  of  a  voluntary'  associa-  Misc.  321. 

lion  of  brokers  do  not,  however,  '  White  vs.  Brownell,  3  .\b.  Pr. 
involve  any  such  combination,  or  (n.  s.)  325;  1  Lindley  on  Part.  (3d 
any  communion  of  profits  from  the  ed.)  57.  See  also  discussion  as  to 
business  transacted  by  the  members,  the  nature  of  unincorporated  asso- 
Like  a  business  club,  its  principal  ciations.  People  ex  rel.  Piatt  vs. 
object  is  the  promotion  of  the  con-  Wemple,  117  X.  Y.  136;  People  ex 
venience  of  its  members  by  furnish-  rel.  Winchester  vs.  Coleman,  133  N. 
ing  facilities  which  aid  them  in  Y.  281 ;  Sandford  vs.  Supervisors  of 
doing  their  business,  and  are,  there-  Xew  York,  1.5  How.  Pr.  172;  Water- 
fore,  of  benefit  to  them."  bury  vs.  .Merchants'  Union  Exp.  Co., 

To    same    effect,   People    ex    rel.  50  Barb.  100;  Thomjis  vs.  Ellmakcr, 

Ix>mmon    vs.    Feitner,    1G7    -N.    Y.  1  Pars.  Cas.  (Pa.)  98;  Flemyng  vs. 

1.  Hector,  2  M.  &  W.  172;  Kegina  vs. 

.\n    incidental    purpose,    but    of  Whitmarsh,  15  Q.  B.  600;  Bear  vs. 

great    importance   to   the   business  Bromley,   18  id.  271.     See  also  case 

and    in%'esliiig   community,    is   the  of   A.sh    vs.    Guie,    11    Pitts.  L.    J. 

maintenance  of  a  higli  standard  of  (Pa.)  n.  s.  -119;  a.  c.  Alb.  L.  J.July 

comnuTfial     integrity     among    the  30,  1KX1,83. 

members  and  protection,  so  fur  aa  *  8  Ex.  898. 


30  Stock-brokers  and  Stock  Exchanges. 

the  Protection  of  Ti-adc,"  t lie  professed  ol)jectof  which  was 
to  "  watch  tlie  prog-ress  of  any  measure  in  Pai-lianient  affect- 
ing the  ti'ade  interests,  and  to  ]irotectitsinein))ers  from  the 
practices  of  the  fraudulent  and  dislionest,"  and  whicli  was 
organized  with  a  president,  vice-president,  treasurer,  secre- 
tary, and  committee — to  which  committee  was  given  the 
general  management  of  the  affairs  of  the  society,  and  which 
society  was  organized  under  a  series  of  rules  adopted  for  the 
management  of  the  same — was  not  a  partnership ;  and  that, 
tlierefore,  one  of  the  members  of  the  society  who  had  fur- 
nished certain  printing  to  the  committee  might  sue  the  com- 
mittee ;  and  that  the  principle  that  oiu^  partner  cannot  sue 
the  partnership  did  not  apply. 

In  the  argument  the  defendants  referred  to  a  case'  which 
held  that  the  promoters  of  a  railroad  company  constituted 
a  partnership,  as  showing  that  a  partnership  existed  in  the 
case  before  the  court.  The  court,  in  reaching  its  conclusion, 
said :  "  The  question  is,  whether,  by  entering  into  this 
scheme,  the  subscribers  form  a  partnership  or  a  quasi- 
partnership  ;  or  whether  the  case  is  similar  to  that  of  a 
number  of  persons  subscribing  to  a  hospital  or  to  an  ordi- 
nary club.  The  solution  of  that  question  is  not  to  be  arrived 
at  by  examining  cases  which  have  reference  to  the  liability 
of  committee-men  or  shareholders  in  projected  railway  com- 
panies, and  in  other  undertakings  of  tiiat  description,  but 
by  consulting  the  rules  themselves." 

Yet  unincorporated  associations  are,  in  law,  often  regarded 
as  mere  partnerships.^ 

'Holmes  vs.  HigRins,  1  B.  &  C.  Co.  vs.  Fry,  4  Phil.  (Pa.)  129;  Grcen- 

71.  wood's  Ciise,  23  Eng.  L.  &  Eq.  422; 

'Robbins  vs.  Butler,  24  111.  397;  Wells  vs.  Gates,  18  Barb.  (N.  Y.) 

Bullard  vs.  Kinney,  10  Cal.  60;  Coal  5.57;  Butterfield  vs.  Beardsley,  28 


Not  a  Corporation.  31 

And  although  a  voluntary  unincorporated  association  like 
the  Xeu'  York  Stock  Exchange  is  not  a  partnership,  the 
rights  of  the  associates  do  not  ditfer  from  a  partnership,  so 
far  as  their  rights  in  the  property  of  the  association  are 
concerned.  "When  therefore  a  member  violates  the  con- 
tractual relation  between  him  and  the  association,  by  being 
guilty  of  reckless  dealing,  or  doing  business  with  im- 
proper parties,  and  he  is  thereupon  deprived  of  his 
memberehip  and  declared  ineligible  for  read  mission,  he, 
or  his  assignee,  forfeits  all  right  to  the  proceeds  of  his 
seat,  and  the  same  may  be  disposed  of  as  the  association 
may  direct.^ 

IV.    Nor  is   the   Stock   Exchange  a  Corporation  or  In- 
corporated Joint-stock  Association. 

It  does  not  exist  by  virtue  of  a  charter  or  legislative 
grant.  It  has  neither  franchises,  special  privileges  nor 
special  powers.  It  obtains  nothing  from  the  state  save 
that  protection  afforded  to  every  citizen.^ 

The  obli<j:ations  and  rights  of  its  members  are  not  deter- 
mined  by  any  statutory  provision.'^  There  is  no  contribu- 
tion of  capital  by  its  members  for  the  prosecution  of  any 
kind  of  business  by  the   association.      It    issues  no  stock, 

•Mich.  U2;  .Moore  vh.  Brink,  4  Hun        ^  A      voluntary      unincorporated 

(N.  Y.),  402;  Kochler  vs.  Urown,  2  joint-stock    company    is,    liowever, 

Daly  (N.  Y.),  78.  liable   to  be  taxed  on   its  capital, 

'  Bclton  V8.  Hatch,  109  N.  Y.  593.  as   a  corporation,   under  the   laws 

'Commercial  Tel.  Co.  vs.  Smith,  of  New  York.     Sandford  vs.  Super- 

47  Hun,  .50.');  Wilson  vs.  Telepram  visors  of  N.  Y.,  l.'i  How.  Pr.  (N.  Y.t 

Co.,  18  .\.  Y   St.  Rep.  78;  Matter  of  172;  People  ex  nl.  Piatt  vs.  Wem- 

Renville,    40    App.    Div.    '.17.     For  pie,  1 17  .\.  Y.  l.'iC*.     Compare  Peo- 

Ktatutes     under    which     exchanir«'S  pie  ex  rel.  Winchester  vs.  Coleman, 

may  be  incorporated  see  ante,  p.  17.  133  N.  Y.  281. 


32  Stock-brokers  and  Stock  Exchanges. 

nor  can  the  individual  members  claim  any  rights  of  prop- 
erty in  it  as  stockholders.' 

Unlike  an  incorporated  commercial  joint-stock  company, 
the  privilege  of  membershiji  in  such  a  voluntary  association 
may  be  conferred  or  withheld,  at  its  pleasure,  and  the  law 
cannot  compel  the  admission  of  an  individual  into  the  society 
against  its  wish.^ 

The  above  are  some  of  the  general  elements  which  dis- 
tinguish stock  exchanges  from  corporations,  incorporated 
joint-stock  associations,  or  partnerships,  and  these  distinc- 
tions ^vill  be  further  developed  in  the  ensuing  subdivisions 
of  this  chapter. 

V.  Rights  of  Members  in  Property  Held  by  Non-incorpo- 
rated Stock  Exchanges. 

In  respect  to  the  property  which  the  Stock  Exchange 
may,  from  time  to  time  own,  interesting  questions  ai-e  in- 
volved in  which  the  distinction  between  this  body  and  cor- 
porations and  partnerships  Avill  further  appear. 

As  has  been  shown,  the  Exchange  is  in  no  wise  interested 
in  the  pecuniary  gains  or  profits  of  its  members;  and  the 
sole  source  of  its  revenue  is  derivable  from  such  dues,  fines, 
assessments,  or  contributions  as  it  may,  from  time  to  time, 
collect  or  receive  from  its  members,  together  with  any  in- 
crease of  its  present  accumulations. 

At  common-law,  the  legal  title  of  the  personal  property 
of  the  Exchange,  it  being  unincorporated,  is  vested  in  all 

»  White  vs.  Brownell,  3  Ab.  Pr.  X.  Y.  St.  Rep.  78;  Matter  of  Ren- 

(n.s.)318.  villc,  46  App.  Div.  37;  Live  Stock 

'  Id.  4  Ab.  Pr.  (n.  s.)   162;  Com-  Commission  Co.  vs.  Live  Stock  Ex- 

mercial  Tel.  Co.  vs.  Smith.  47  Hun,  change,  143  111.  210. 
505;  Wilson  vs.  Telegram    Co.,  18 


Members'  Rights  iu  Property.  33 

of  its  members,  in  like  manner  as  the  title  to  partnership 
property  is  vested  in  all  the  partners.  But,  unlike  the  rela- 
tion of  partners,  a  member  of  the  Exchange,  or  his  legal 
representatives,  has  no  right  to  call  for  an  account  of  the 
property  and  a  division  of  the  same.  The  interest  of  each 
member  in  the  property  of  the  association  is  equal,  but  is 
subject  to  the  constitution  and  by-laws.  They  ex[)ress  the 
contract  by  which  each  member  has  consented  to  be  bound, 
and  which  measure  his  duties,  rights  and  privileges  as 
such.^ 

A  member  has  no  several  proprietary  interest  in  it,  or  a 
right  to  any  proportionable  part  of  it,  upon  withdrawing. 
He  has  merely  the  enjoyment  and  use  of  it  while  he  is  a 
member ;  but  the  property  remains  with,  and  belongs  to, 
the  body  while  it  continues  to  exist,  like  a  pew,  the  ultimate 
and  dominant  property  in  which  is  in  the  congregation,  and 
not  in  the  pewholder ;  and  when  the  body  ceases  to  exist, 
those  who  may  then  be  members  become  entitled  to  their 
proportionate  share  of  its  assets.^ 

This  princij)le  arises  mainly  from  the  fact  that  organiza- 
tions of  this  character  are  not  constituted  for  gahi,  but  for 
the  convenience  of  their  members,  and  the  possession  of 
prop<irty  by  them  is  a  mere  incident,  and  not  the  main 
pur|)ose  or  object  of  the  association.^ 

When  a  person  is  elected  a  member  of  the  Exchange,  ho  be- 
comes entitled  to  what  isconmionly  called  a  "seat,"  and  such 
a  i)roportionate  interest  in  the  property  of  the  association  as 
he  would  be  entitled  to  if  he  should  haj)pen  to  be  a  mem- 

'  Belton   VB.    Hatch,     100    N.  Y.  Pr.  (ii.  s.)  102-101 ;  Fiuwott  vs.  First 

593.  I'ariHh  in  Hoyk-Htoii,  10  Pick.  301; 

'St    Jamc«'H  CIul),   13  Va\\i.  L.  k  Cakiicott  vs.  (Jriflith,  H  Iv\.  HOS. 
Exj.  502;  \Vhit«  vh.  lirowncll,  4  Ab.        '  White  vh.  Hrowiicll,  Mupru. 

8 


34  Stock-brokers  and  Stock  Exchanges. 

ber  at  the  time  of  its  dissolution ;  and  that  interest  would 
be  found  by  dividing  the  amount  of  property  b}"  the  num- 
ber of  "seats"  then  existing  after  deducting  debts  and  lia- 
bilities. These  "  seats, ''  under  the  15th  Article  of  the 
Constitution  of  the  New  York  Stock  Exchange,  are  trans- 
ferable, but  the  transferee  must  be  approved  by  two  thirds 
of  the  Committee  on  Admissions.  The  transfer,  sale  or 
assignment  of  the  interest  of  a  partner  would  work  a  disso- 
lution of  the  partnership.'  In  the  present  instance,  however, 
the  transferor,  by  sucli  an  act,  does  not  disturber  affect  the 
general  organization ;  he  simply  ceases  to  be  a  member  and 
to  have  any  legal  interest  or  concern  in  the  Exchange,  and 
the  transferee  becomes  invested  with  all  of  the  privileges, 
duties,  and  attributes  of  membership.  When  a  member  dies, 
his  membership  may  be  disposed  of  by  the  Committee  on 
Admissions  ;  and,  after  satisfying  claims  of  the  members,  the 
balance  remaining  is  paid  to  the  legal  representatives  of  the 
deceased.  If  the  Committee  on  Admissions  should,  for  even 
arbitrary  reasons,  refuse  to  approve  a  person  to  whom  a  mem- 
ber has  bargained  to  sell  his  seat,  it  f (allows  that  the  latter 
is  forced  to  continue  his  membership.  By  signing  the  Con- 
sitution  each  member  agrees  to  the  same,  and  to  all  the  by- 
laws, rules,  or  regulations  which  may  be  adopted  (provided 
they  are  legal,  as  we  shall  hereafter  see) ;  and  thus  a  contract 
is  expressly  established,  by  which  the  ordinary  principles 
that  govern  the  relations  of  partnerships  and  corporations 
are  avoided.^ 

*  Pars,  on  Part.  (5th  ed.)  433,  434;  ject,  however,  to  the  condition  that 
1  Lindley  on  Part.  (4th  ed.)  698,  before  the  purchaser  can  participate 
6th  ed.  p.  575,  577.  in  the  proceedings  of  the  board  he 

^  In  the  case  of  exchanges  which  must  be  elected  a  member,  then 
by  their  rules  expressly  permit  a  there  can  be  no  doubt  that  if  a 
m  ember  to  dispose  of  his  seat,  sub-    member  should  sell  his  scat  to  one 


Members'  Rights  in  Property.  35 

As  to  any  real  estate  which  the  Exchange  may  acquire,  the 
questions  which  woukl  ordinaril}'-  arise  in  relation  thereto 
are  more  difficult  and  numerous.  Their  propert}"  heing,  as 
we  have  seen,  technically  held  by  them  as  partners,  it  follows 
that  the  persons  who  are  members,  when  they  acquire  hinds 
are  vested  with  equal  interests  therein ;  and  that  the 
Stock  Exchange  at  common  law,  being  an  unincorporated 
body,  could  confer  no  title  upon  a  purchaser  unless  all  of 
its  members  joined  in  the  conveyance ;  or,  if  any  of 
them  were  deceased,  the  heirs  of  such  of  them  as  were 
members  at  the  time  the  real  estate  vested  in  the  Ex- 
change. 

To  avoid  the  many  Cjuestions  of  the  above  nature  which 
doubtless  would  have  arisen  if  real  estate  Avere  held  by  the 
Exchange,  a  company  was  incorporated  under  the  laws  of 
the  State  of  New  York,'  duly  empowered  to  hold  real  estate, 

who  should  not  be  elected  a  member  uce    Exch-nige,    having  no  money 

of  the  board,  such  purchaser  would  value  attached,  is  a  personal  privi- 

take,  subject  to  any  rules  imposed  lege,  and  a  bill  will  not  lie  for  an 

by  the  association,  the  interest  of  injunction  to  restrain  the  Exchange 

his  vendor  in  the  property  of  the  from    issuing    new    certificates    of 

association,  and  this  was  so  held  in  membership  to  four  members  whose 

the  case  of  Clute  vs.  Lovcland,  GS  seats  plaintiff  had  purcha-sed.     Un- 

Cal.   2.54.  dcr  the  nilos  plaintiff  could  not  be 

.\rticle  XV.  of  the  constitution  of  "approved"    as    a    member    more 

the    New    York    Stock    Exdiango,  than  once.     If  he  wire  injured,  he 

iliffcrs,  however,  frr»m  the  rules  of  had  his  remedy  at  law.     Shoemaker 

Exchanges    permitting,    a.s    above  vs.  Exchange,  15  Phila.  K.  103;  30 

shown,  a  "  disposal "  of  the  member-  Leg.  Int.  373.     As  to  retran.sfer  of 

ship,   before   the    approval   of   the  a  seat  by  an  employee  of  a  member 

purrhaHcr    by    the    Exchange,    by  in  whose  name  the  seat  wa-s  helil, 

denying  the  right  of  tran.sfj-r  of  his  see  Sproul  vs.  Morris,  31  Pitts.  L.  J. 

seat  to  a  member  until  his  trans-  (n.    s.)    310.     S<>e    also    ,\llicn    vs. 

feree    hivt    bcfu    approve<l  l)y  two  Wotherspoon,  r>0  X.   ^'    Super.  Ct. 

thirds  of  the  committee  on  admis-  117. 
nioiiH.  '  Incoq).  Jan.  .30,   l.S()3. 

A  seat  in  tlie  I'liil.idelplii;!   I'rod- 


36  Stock-brokers  and  Stock  Exchanges. 

the  stock  of  the  company  being  exclusively  owned  and  held 
by  the  Stock  Exchange.' 

In  the  year  1807  there  was  enacted  in  the  State  of  New 
York  a  general  law  authorizing  any  joint-stock  company  or 
association  to  purchase,  hold,  and  convey  leal  estate :  1st,  To 
an  extent  necessary  for  its  iiiiinediate  accommodation  in  the 
convenient  transaction  of  its  business ;  2d,  Such  as  shall  be 
mortgaged  to  it  in  good  faith,  to  secure  loans  made  by  or 
moneys  due  to  it ;  or,  3d,  Such  as  it  shall  purchase  at  sales 
under  judgments,  decrees,  or  mortgages  held  by  it ;  but  in 
no  other  case,  nor  for  any  other  purpose. 

Conveyances  shall  be  made  to  the  president  of  the  associa- 
tion, as  such,  and  he  and  his  successors  may  sell,  assign,  and 
convey,  free  from  any  claim  of  shareholders,  or  any  person 
claiming  under  them.'- 

This  act  may  be  construed  as  a  restraint  upon  the  right 
of  joint-stock  associations  to  purchase  and  hold  real  estate 
not  needed  for  immediate  use.  Such  seems  to  have  been 
the  construction  given  to  it  in  Rainey  vs.  Laing.'*  But  if  the 
statute  is  violated  in  this  respect,  no  one  can  question  the 
title  but  the  State.^ 

'  The  ownership  of  the  building  in  ^  58  Barb.  489. 

which  the  London  Stock  Exchange  *Id.;  Howell  vs.  Earp,  21  Hun 

is  situated  is  also  in  a  distinct  body.  (X.  Y.),  393.     Aside  from  the  stat- 

Mclsheinicr  it  Lawrence   Stock  Ex.  ute  just   quoted,   it   is   a   question 

3d  ed.  4;  Brodliurst's  Lawand  Prac-  whether,  in  view  of  the  fact  that 

tice  of  the  Stock  Ex.  p.  32.     The  the  members  of  the  Exchange  are 

real   estate   of   the   San   Francisco  partners,  in  some  a.spect.«;,  a  grant  to 

Stock  and  Exchange  Board,  a  vol-  the  Stock  Exchange  would  be  valid. 

untar>-  as.sociation,  is  held  by  a  cor-  It  has  been  held  that  a  community 

poration   composed   exclusively   of  or  society,  not  incorporated,  cannot 

the  members  of  the  board.      Clute  purchase  land  and  take  in  succes- 

vs.  Loveland,  68  Cal   2.5.5.  sion.     Co.  Litt.  3  a,10  Co.  266;  Com. 

2  L.  of  N.  Y.  1867,  vol.  i,  ch.  289,  Dig    tit.  Capacity,  B  1 ;  Gocsely  vs. 

576.  Bimeler,  55  U .  S .  589 ;  German  Land 


Members'  Ri2:Iits  in  Property.  37 

The  question  is  not,  however,  now  of  moment  as  this 
statute  was  repealed  by  the  Joint  Stock  Association  Law,' 
and  as  the  second  section  of  the  hitter  hiw  restricts  its 


Association  vs.  Schollcr,  10  Minn. 
331;  Liggett  vs.  Ladd,  17  Cr.  S9; 
Douthitt  vs.  Stimson,  73  Mo.  199; 
Jackson  vs.  Cory,  S  Johns.  (X.  Y.) 
Reps.  385;  Hornbeck  vs.  Westbrook 
9  id.  73;  same  vs.  Sleight,  12  id.  198. 
In  this  last  case  it  is  said:  "The  in- 
habitant.s  of  Rochester  were  not  a 
body  corporate,  so  as  to  be  compe- 
tent to  take  an  estate  in  fee.  And 
if  a  grant  to  them  in  a  deed  would 
be  void,  a  reservation  to  them  in  a 
deed,  in  fee,  to  a  third  person  would 
be  equally  void.  Nor  would  it  be 
vaHd  as  a  covenant  to  stand  seized. 
The  inhaljitants  of  Rochester  were 
strangers  to  the  deed.  The  present 
inhabitants,  at  all  events,  inu.st  be 
so  considered.  For  they  not  being 
a  body  corporate  so  as  to  perpetuate 
the  rights  granted  to  the  patent, 
these  rights  must  be  restricted  to 
the  then  inhabitants."  Although 
if  a  voluntary  association  is  subse- 
quently incorporated,  the  title  to 
land  held  by  its  officers  by  adverse 
poR.se.ssion,  pas.ses  to  the  corpora- 
tion. Kt'f.  Ch.  of  Gallupvillc  vs. 
Srhwilcraft,  65  X.  Y.  131.  Hut  see 
Ticknor's  Est.,  Sup.  Ct.  Mich,  t 
Am.  Law  Reg.  ^n.  s.)  2G9  note; 
Hamblett  vs.  Bennett,  S8  Mass. 
140;  IvLst  Haddam  Hapt.  Ch.  vs. 
I'2a.st  Had<iani  liapt.  Sor.,  44  Conn. 
259.  .\  grant  to  a  vohnitary  unin- 
coq)orate<l  as-sociatiori,  whosi-  nicm- 
bcFH  arc  ascertainable  may  be  con- 
Htrucd  an  a  grant  to  Kuch  nu-mberH 


as  tenants  in  common.  Byam  vs. 
Bickford,  140  Mass.  31.  A  volun- 
tary association  unincorporated  is 
incapable  of  taking  a  legacy.  A 
legacj'  bequeathed  to  such  an  asso- 
ciation is  invalid,  and  the  property 
so  bequeathed  vests  in  the  testator's 
next  of  kin  if  not  otherwise  disposed 
of.  Shipman  vs.  Rollins,  19  X.  Y. 
Weekly  Dig.  370;  Supm.  Ct.  Gen'I 
Term,  1st  Depart.,  and  cases  there 
cited.  So  a  voluntary  unincor- 
porated association  for  charitable 
purposes  cannot  take  property  by 
devise  in  the  State  of  Xew  York. 
White  vs.  Howard,  46  X.  Y.  144, 
aff'g  52  Barb.  294;  Sherwood  vs. 
American  Bible  Society,  1  Keyes  (N. 
Y.),  501,  567;  Owens  vs.  Missionary 
Society,  14  X.  Y.  380;  Downing  vs. 
Marshall,  23  X.  Y.  366;  McKeon  vs. 
Kearney,  57  How.  Pr.  (X.  Y.)  350; 
Contra,  Hornbeck  vs.  Am.  Bible 
Soc,  2  Sandf.  Ch.  133.  Nor  can 
such  an  association  take  a  bequest, 
although  subsequently  to  the  death 
of  the  testator  it  becomes  incorpo- 
rated. Baptists'  A.ssociation  vs. 
Hart's  Executors,  4  Wh.  (U.  S.)  1; 
3  Pet.  497;  see  also  2  Rcnlf.  on  Wills, 
ch.  i,  §  7.  That  a  bequest  to  .such 
an  association  nuiy  .lie  valid  or  bo 
made  to  take  <'lTect  indirectly,  sop 
Preacher's  .\id  Society  vs  Rich,  45 
Me.  552;  Caliill  vs.  liigirer,  8  B 
Monr.  (Ky.)  21 1  ;  Smith  vs  Xel.son, 
IS  Vf.  511,  5n');  PealxMly  vs  V/.isi- 
eni  Methodist  Scic,  H7  Mjwm.  540; 


«  L.  1S94,  c.  235.  cli   45.  of  the  Gen.  Laws. 


38  Stock-brokers  jiiid  Stock  Exchanges. 

operation  to  unincorporated  joint-stock  associations,  com- 
panies, or  enterprises,  having  written  articles  of  associa- 
tion, and  capital  stock  divided  into  shares,  qualifications 
not  possessed  by  the  Xew  York  Stock  Exchange,  that  body 
could  scarcely  be  held  entitled  to  the  benefit  of  its  sixth 
section  which  substantially  reenacts  the  provisions  of  the 
prior  statute,'  except  as  to  alienation  of  the  land  by  the 
president. 

VI.  Liability  of  Members  for  Debts,  etc. 

Another  question  which  arises,  in  considering  the 
nature  of  an  unincorporated  association  like  the  Stock 
Exchange,  is  as  to  the  individual  liability  of  the  members 
thereof,  ex  contractu  or  ex  delicto^  for  the  acts  of  its 
officers,  committees,  representatives,  or  of  their  fellow- 
members. 

The  general  rule  is,  that  members  of  unincorporated  com- 
panies are  regarded  as  partners  and  are  subject  to  the 
Avliole  law  of  partnerships.'  But  the  application  of  this 
principle  to  a  body  like  the  Stock  Exchange  is  very  re- 
Gibson  vs.  McCall,  1  Rich.  (S.  C.)  tion.  Allen  vs.  Stevens,  161  N.  Y. 
Rep.  174.  But  now  by  L.  1893,  122.  Also  a  bequest  of  personal 
c.  701,  conveyances,  devises,  gifts  property.  Matter  of  J.  Fitzsimmons, 
or  bequests  to  charitable,  etc.,  uses  29  Misc.  204,  and  a  bequest  to  an 
which  shall  be  in  other  respects  unincorporated  charitable  associa- 
valid,  shall  not  be  deemed  invalid  tion  is  valid.  Matter  of  B.  Fitz- 
by  reason  of  the  indefiniteness  of  simmons,  29  Misc.  731.  See  also 
the  beneficiaries.  The  Real  Prop-  Dammert  vs.  Osborne,  140  N.  Y. 
erty  Law,  L.  1896,  c.  547,  §  93,  con-  30;  People  vs.  Powers,  147  N.  Y. 
tains  a  similar  provision  as  to  real  104. 
estate.  Under  those  .statutes  a  de-  '  L.  1867,  c.  289. 
\'ise  of  real  estate  for  permanent  'Pars,  on  Part.  (4th  ed  )  §431; 
charitable  purposes  has  been  held  Wordsworth  on  Joint-stock  Com- 
valid  although  the  testator  did  not  panics,  21,  220. 
direct  the  formation  of  a  corpora- 


Liability  of  Membei*s.  39 

stricted.  One  case  seems  to  have  occurred  wliicli  is  im- 
pliedly decisive  of  tlie  personal  liability  of  members  of  a 
Stock  Exchange  ;  ^  but  there  are  very  many  instances  in  the 
books  in  which  members  of  clubs  and  other  associations 
have  been  sought  to  be  charged  as  individuals,  for  acts  of 
committees,  etc.,  and  Avhich  would  doubtless  control  a  case 
of  the  former  character,  if  it  ever  should  arise.  For  the 
acts  of  its  officers  or  servants,  directly  authorized  by  the 
constitution,  laws,  or  regulations  of  the  Stock  Exchange, 
its  members  would  be  individually  liable  under  the  general 
principle  above  cited.'^ 

But  the  great  contention  has  arisen  in  those  cases  where 
the  officers  or  servants  have  contracted  obligations  or  in- 
curred liability,  without  an}'  direct  or  express  authorization 
from  the  association.  This  question  seems  to  have  been  de- 
termined, in  the  modern  cases,  by  the  law  of  })rincipal  and 
agent  rather  than  that  of  partnership.  Mr.  (now  Lord) 
Lindley  says  on  this  subject:  "If  liabilities  are  to  be  fast- 
ened on  any  of  their  members,  it  must  be  by  reason  of  the 
acts  of  those  members  themselves,  or  by  reason  of  the  acts 
of  their  agents ;  and  the  agency  must  be  made  out  by  the 
person  who  relies  on  it,  for  none  is  implied  by  the  mere 
fact  of  association."  ^ 

This  question  is,  at  present,  entirely  speculative,  and 
there  can  be  no  practical  use  in  discussing  it  at  any  length, 

•  Kronfield  vs.  Haines,  20  Misc.  lawful  contracts,  and  the  incorpora- 

102.  tion  boiiiK  a  mere  device  to  escape 

'  In  McGrew  vs.  City  Produce  E.x-  their  otlier\vi.se  individual  liahility. 

change,  H.'i  Tenn.   572,  it   was  held  '  1  Lindley  on  I'art.  and  C"()nii)aiiy 

that  the  incorporators  of  an  incorpo-  Law  (1th  edj,  hi.     Tlie  liahility  of 

rate<l    exchanue    were    individually  partners  is  now  repdated   in  Knu- 

liahle  for  sums  receivcxl  hy  the  e.x-  land  hy  the  Partnership  .Act,  ISiiO. 

change  mananers  in  waiierinn  con-  See   Lindley    on    Partnersiiip    ((ith 

tracts,  it  heinK  the  intention  of  all  the  cd.),  p.  133  et  acq. 
Incorporutoni  to  engage  in  such  uu- 


40 


Stock-brokers  and  Stock  Exchanges. 


but  a  collection  of  modern  authorities  upon  the  general  sub- 
ject will  be  found  below.' 


Til.  Suits  by  and  against  the  Stock  Exchange. 

At  common  law,  carrying  out  the  analogy  between  unin- 
corporated bodies  and  partnerships,  in  a  suit  by  or  against 
the  former,  it  was  necessary  that  all  persons  composing  the 
same  should  be  made  parties.^ 

But  the  Legislature  of  the  State  of  New  York,  by  the  act 
of  1S49,  ch.  258,  has  provided  that  any  joint-stock  company 
or  association,  consisting  of  seven  or  more  stockholders  or 
associates,  may  sue  and  be  sued  in  the  name  of  the  president 
or  treasurer,  for  the  time  being,  of  such  joint-stock  com- 
pany or  association.^ 


1  2  Lindley  on  Part.  57,  note  (d) 
and  cases  cited.  See  also  Lindley 
on  Partnership  (6th  ed.),  p.  133  et 
seq.  See,  also,  Wordsworth  on 
Joint-Stock  Companies,  ch.  viii.  and 
cases  cited;  Pars,  on  Part.  (3d  ed.) 
45  note  (b);  (4th  ed.)  §  GO,  and  note 
2;  Ebbinghousen  vs.  Worth  Club,  4 
Ab.  New  Cas.  (N.  Y.)  300,  and  note, 
where  a  full  discussion  of  this  sub- 
ject is  made;  Park  vs.  Simmons,  10 
Hun  (X.  Y.),  128,  which  seems  to  be 
contrary  to  the  majority  of  the 
cases  on  this  subject,  and  is  ex- 
pressly repudiated  by  Ebbinghousen 
vs.  Worth  Club  (supra) ;  Lafond  vs. 
Deems,  1  Ab.  New  Cas.  318;  81  N. 
Y.  507.  As  to  the  question  of  lia- 
bility of  members  of  a  club  for 
negligence  in  the  management  of 
their  property,  see  English  vs. 
Brenan,  60  N.  Y.  609;  2  Hilliard  on 
Torts,  230. 

'  Ang.  &  Ames  on  Corp.  (10th  ed.) 


§§591,  599;  Williams  vs.  Bank  of 
Michigan,  7  Wend.  542;  Wells  vs. 
Gates,  18  Barb.  (N.  Y.)  554;  Dicey 
on  Parties,  170,  172  (Truman's 
notes);  East  Haddam  Bapt.  Ch.  vs. 
East  Haddam  Bapt.  Soc,  44  Conn. 
259;  Haskins  vs.  Alcott,  13  Ohio  St. 
216.  But  in  equity  in  certain  cir- 
cumstances suit  may  be  maintained 
by  the  trustees  of  a  voluntary  asso- 
ciation on  behalf  of  themselves  and 
their  associates.  Birmingham  vs. 
Gallagher,  112  Mass.  190;  or  against 
the  board  of  directors,  Greer  vs. 
Stoller,  77  Fed.  1. 

^  This  act  and  its  amendments  (L. 
1851,  ch.  455,  and  L. 1853, ch. 153) 
were  repealed  b)'  L.  1880,  ch.  245, 
and  their  provisions  have  been  re- 
enacted  in  the  Code  Civ.  Pro. 
§§  1919-1924.  The  amendment  of 
1854  (L.  1854,  ch.  245)  was  repealed 
by  and  re-enacted  in  the  Joint- 
Stock   Association   Law   (L.    1894, 


Suits  By  and  Agaiust.  41 

This  provision,  not  being  deemed  broad  enough,  was  ex- 
tended by  the  Laws  of  1S51,  ch.  455,  to  any  company  or 
association  composed  of  not  less  than  seven  persons  who  are 
owners  of,  or  have  an  interest  in,  any  property,  right  of  ac- 
tion or  demand,  jointly  or  in  common,  or  who  may  be  liable 
to  any  action  on  account  of  such  ownership  or  interest.^ 

The  New  York  statute  provides  that  where  an  associa- 
tion consists  of  more  than  seven  members,-  the  action 
may  be  brought  in  the  name  of  the  president,^  and  this 

ch.  235).     TSTiether  this  act  extends  purpose  of  carn'mg  on  a  trade  or 

to  private  voluntary  copartnerships  business   in  that  State,   or  holding 

or  associations,   which  are  not  or-  propertj-   therein,    may   sue   or   be 

ganized  in  pursuance  of  some  stat-  sued  by  the  usual  or  ordinary  name 

ute,  was  questioned  in  Austin  vs.  which  it  has  assumed,  or  by  which 

Searing,  16  N.  Y.  112;  and  in  Rorke  it  is  known;  and,  in  such  case,  it 

vs.  Russell,  2  Lans.  Rep.  (X.  Y.)  shall  not  be  necessary  to  allege  or 

244;    see    also    Ebbinghousen    vs.  prove  the  names  of  the  individual 

Worth  Club,  4  Ab.  New  Cas.  300.  members  thereof.     Tlie  above  stat- 

But  this  question  is  put  at  rest  by  ute  only  applies  to  companies  doing 

§  1919,  Code  Civ.  Pro.,  which  specif-  business  within  the  State.     Haskins 

ically    includes     partnerships    and  vs.  Alcott,  13  Ohio  St.  210. 

unincorporated  associations.  In    England     several    acts    have 

It  has  been  held  that  such  a  state  been  passed  allowing  certain  speci- 
statute,  authorizing  one  or  more  fied  unincorporated  associations  to 
members  of  an  unincorporated  asso-  sue  and  be  sued  in  the  name  of  their 
ciation  to  represent  the  others  in  officers  for  the  time  being.  I 
the  courts,  will  be  followed  by  a  Chitty'-e  PI.  IG  (16th  Amer.  ed.). 
Federal  court  of  equity,  and  the  '  The  allegation  that  the  associa- 
members  conclusively  presumed  to  tion  consists  of  seven  or  more  mem- 
have  the  same  citizenship  as  such  hers  is  material  and  issuable. 
ofFicers.  1  Foster's  Fed.  Pr.  (2d  Tiffany  vs.  Williams,  10  Abb.  P. 
ed.)  i  45,  p.  lis,  and  caaes  cited  in  U.  204 
note  27.  *()r    treasurer.     3    N.    Y.    Rev. 

«  By  the  laws  of  Pennsylvania,  in  Stat.  (6th  ed.)  762;  Code  Civ.  Pro. 

the  case  of  joint-stock  compunlc.'^,  §  1919.     But  the  actimi  cannot  be 

unincorp<>rate<l,     process     may     be  Ijnmght  against  Ixith  president  and 

8cr\'ed  up^jn  any  officer,  agent,  etc.  treiwuror.      Schmidt    vs.    (Junther, 

PeppiT   (t    Lcwi.s's    Dit:.    vol.    4,   p  5  Daly.  452.     The  action  cannot  be 

1.361.      By  thi-  H<  V    Stat,  of  t)hio,  brought  against  the  iLKsocintion  as 

I  501 1,  a  partiHTHhip  formed  for  the  hu(  li,  and  service  on  the  .secretary  is 


42 


Stock-brokers  and  Stock  Exchaiiffos. 


provision  has  been  held  to  extend  the  remedy  to  all  associa- 
tions.' 

The   statute   applies   to   tlie   remedy,  and   the  lex  fori 


insufBcicnt.  Hanke  vs.  Cigar  Mak- 
ers' Union,  58  Supp.  412.  If  the 
association  has  no  president,  the 
action  may  be  brought  by  some  of 
the  members  on  behalf  of  them- 
selves and  the  other  members,  and 
such  action  may  be  so  brought 
whether  there  is  a  president  or  not, 
§  ID  It)  of  the  Code  not  limiting  the 
eflfect  of  §  446  and  §  448.  Bloete 
vs.  Simon,  12  Civ.  Pro.  Rep.  114. 

'  Bridenbecker  vs.  Hoard,  32 
How  Pr.  (N.  Y.)  289;  Tibbetts  vs. 
Blood,  21  Barb.  650;  Corning  vs. 
Greene,  23  id.  33;  De  Witt  vs. 
Chandler,  11  Ab.  Pr.  (N.  Y.)  459, 
470;  National  Bank  vs.  Lasher,  1 
T.  &  C.  (N.  Y.)  313;  Waller  vs. 
Thomas,  42  How.  Pr.  (N.  Y.)  346; 
Ebbinghousen  vs.  Worth  Club,  4 
Ab.  New  Cas.  300;  Allen  vs.  Clark, 
65  Barb.  563;  National  Bank  vs. 
Van  Derwerker,  74  N.  Y.  234;  and 
see  4  Duer,  362;  18  Ab.  Pr.  191;  55 
Barb.  487.  §  1919,  N.  Y.  Code 
Civ.  Pro.,  extends  the  remedj'  to  all 
associations  having  a  president  or 
treasurer.  So  an  action  may  be 
brought  in  the  name  of  the  presi- 
dent, to  recover  calls  from  share- 
holders. Bray  vs.  Farwell,  3  Lans. 
(N.  Y.)  Rep.  495.  So  a  member  of 
a  joint-stock  association  may  main- 
tain an  action  against  such  associa- 
tion. It  is  not  an  action  against 
himself.  Westcott  vs.  Fargo,  61 
N.  Y.  542;  Saltsman  vs.  Shults,  14 
Hun  (N.  Y.),  256.  See  McMahon 
vs.  Rauhr,  47  N.  Y.  67;  Sander  vs. 
Eidlen,    13   Daly,    238;   Snow   vs. 


Wheeler,  113  Mass.  179.  But  see 
Bullard  vs.  Kinney,  10  Cal.  60; 
Coal  Company  vs.  Fry,  4  Phil.  (Pa.) 
129;  Wilson  vs.  Curzon,  15  M.  &  W. 
532;  Perring  vs.  Hone,  4  Bing.  28; 
Holmes  vs.  Higgins,  1  B.  &  C.  74. 
As  to  when  the  agent  of  a  Lloyd's 
Assn.  may  be  sued,  sec  New  York 
vs.  Whipple,  36  App.  Div.  49. 

The  officer  sued  in  his  representa- 
tive capacity  is  a  party  to  the  ac- 
tion and  as  such  may  be  examined 
before  trial.  Woods  vs.  De  Figa- 
niere,  1  Rob.  607;  McGuffin  vs. 
Dinsmore,  4  Abb.  N.  C.  241 ;  Brooks 
vs.  Hoey,  18  Civ.  Pro.  (N.  Y.)  98; 
Whitman  vs.  Hubhill,  30  Fed.  Rep. 
81.  Contra  Duncan  vs.  Jones,  32 
Hiui,  12,  where,  however,  it  was 
said  that,  in  a  proper  case,  he  may 
be  examined  before  trial  as  a  wit- 
ness. 

No  power  is  given  to  the  desig- 
nated officers  to  sue  where  the 
members  themselves  could  not  have 
sued.     Corning  vs.  Green,  23  id.  33. 

And  it  is  immaterial  whether  the 
officer  sued  is  an  infant  or  not. 
The  action  is  against  the  officer  as 
such,  not  against  him  as  an  indi- 
vidual. Nicoll  vs.  Munn  (N.  Y. 
Sup.  Chambers),  N.  Y.  Law  Jour- 
nal, p.  432,  Nov.  16,  1894. 

The  statute,  of  course  only  ap- 
plies to  the  remedy  in  the  State, 
and  members  of  such  an  a.ssocia- 
tion,  may  be  sued  in  other  states 
as  partners.  Bo.ston  &  Alb.  R.  Co. 
vs.  Pearson,  128  Mass.  445. 

In  France  the  syndic  who  is  at  the 


Suits  By  and  Against. 


43 


governs.  It  is  not  confined  to  associations  of  the  State  of 
New  York,  but  applies  to  all  associations  which  come  into 
court  under  it.  Where  the  statute  provides  a  remedy,  it 
extends  to  all  persons  who  use  it,  unless  the  act,  by  its  terms, 
expressly  limits  its  application.' 

In  tKe  case  of  Rorke  vs.  Russell  ^  it  was  held  that  the 
above-cited  statutes  were  passed  for  the  purpose  of  facil- 
itating a  certain  class  or  kind  of  legal  actions,  relating  to, 
or  by  which  a  remedy  is  sought  as  regards,  the  "  joint  prop- 
erty and  effects  "  of  the  company  or  association ;  and  that 
where,  in  an  action  against  the  president  of  the  'New  York 


head  of  the  sjTidical  board  as  gov- 
erning committee,  is  the  legal  rep- 
resentative (mandataire)  both  of  the 
committee  and  of  the  association 
and  brings  action  on  their  behalf  in 
his  own  name. 

In  the  case  of  Thomas,  a  member 
of  the  Lyons  Exchange  or  company 
of  agents  de  change,  the  Court  of 
Cassation  decided  in  1885  that  it  is 
the  "syndic  qui  lui-meme  repr^- 
sente  l^galement  la  chambre  et 
toute  la  corporation;  qu'il  en  resulte 
qu'au  cas  de  necessity  d'agir  contre 
un  d«5biteur  de  la  caisse,  c'e-st  le 
syndic  qui  a  seul  qualit6  pour  in- 
tenter  Taction ;  et  qu'il  exerce  en  son 
nom  propre  en  vcrtu  de  son  titre  de 
mandataire  l^gal;  et  i  defaut  du 
syndic,  au  liquidateur  que  la  justice 
aura  dfsign6  pf>ur  en  rern[)lir  les 
fonctiorw."  (Sirey,  1SS(»,  1,  1 ')()). 
In  u  noU;  on  the  sarni'  pag*-  the 
functions  of  the  syinlic  and  Hyndiral 
chamber  are  thus  tlefincil:  "  F.eH 
a;;cntH  de  change  de  chaque  place 
doivent  «e  r<?unir  et  nonuner,  h  la 
majorit<?  abttolue,  un  syndic  et  six 


adjoints,  pour  exercer  une  police 
interieure,  rechercher  les  contraven- 
tions auxlais  et  reglements  et  les 
faire  connaitre  a  I'autoritd  publique. 
Comme  toutes  les  corporations  ana- 
logues institutes  par  la  loi,  tellcs 
que  celles  de  notaires,  avou(5s, 
avocats,  et  du  sein  desquelles  est 
tir^e  une  representation  chargde  de 
r^gler  les  questions  de  discipline 
interieure  et  de  faire  valoir  leur 
interets  au  dehors,  la  corporation 
des  agents  de  change  a  ete  par 
cette  disposition  pourvue  d'un 
corps  representatif,  la  chambre 
syndical  ayaiit  a  sa  tete  le  syndic, 
charge  de  personnificr  et  de  repr<5- 
senter  la  corporation  dans  toutes 
les  circonstances  ou  ce  serait  n<5- 
cessaire." 

'  See  also  N.  Y.  Code  of  Civil 
Proc.  §  MS,  allowing  one  to  be  aue<l, 
where  a  large  number  of  jXTSons  are 
interested.  See  Diepeiibrock  vs. 
Prmluce  lOxchange,  N.  Y.  L.  J., 
Julv   11,    1901. 

»  2  Lans.  (N.  Y.)  245. 


44  Stock-biokers  and  Stock  K>Lcliiiii(?es. 

Mining  Stock  Boiinl,  the  only  relief  asked  for  was  that  the 
president  of  the  board,  its  officers  and  members,  should  be 
restrained  from  enforcing  tlie  vote  or  resolution  of  the 
board,  susjiending  the  ])laintilT  from  his  membership  for  a 
certain  number  of  days,  it  was  held  that  the  action  was  not 
within  either  of  these  statutes  ;  that  i)laiiitiir  could  not  bi-ing 
a  suit  against  the  president  alone  ;  that  such  a  suit  could 
not  be  regarded  as  a  suit  against  the  company  or  board  ; 
that  no  member  of  the  latter  would  be  regarded  as  a  party 
to  it ;  and  that,  accordingly,  an  injunction  could  not  be 
regularly  issued  against  any  one  else  than  the  president. 

This  construction  seems  too  narrow,  and  it  was  dissented 
from  by  one  of  the  justices  ;  but,  although  the  decision  does 
not  appear  to  have  been  expressly  overruled,  subsequent 
cases  w^ould  seem  to  show  that  it  has  not  been  followed  as 
a  precedent.^' 

And  in  the  later  case  of  National  Bank  vs.  Van  Der- 
werker,^  where  the  defence  was,  that  to  bring  a  case  within 
the  statute  in  question  it  was  necessary  to  show  the  exist- 
ence of  a  company  having  stock  divided  into  shares,  and 
shareholders  holding  the  same,  the  court  held  that  the  stat- 

*  Since  the  above  was  written  the  within  the  purpose  designed  to 
case  in  question  has  been  expressly  be  accomplished  by  the  acts  of 
overruled  by  Mervin,  J.  (Spec.  1849  and  1851.  See  also  Mc- 
Term,  Sup.  Ct.),  who  held  in  Fritz  Kane  vs.  Dem.  Gen.  Comm.,  21 
vs.  Muck,  62  How.  Pr.  69,  that  an  Abb.  N.  C.  89.  White  vs.  Brownell, 
action  may  be  maintained  against  2  Daly,  329,  and  Hutchinson  vs. 
the  president  of  a  voluntary  a.sso-  Lawrence,  67  How.  Pr.  38,  are  cases 
ciation,  by  an  expelled  member,  to  of  the  same  nature,  brought  again.st 
compel  his  restoration.  The  object  the  president,  where,  however,  the 
of  the  plaintiff  is  to  place  himself  in  point  in  q\iostion  wa.s  not  raised, 
a  position  where  he  can  reach  the  '74  X.  Y.  234;  §  1919,  Code  Civ. 
joint  property;  and  so  the  action  is  Pro.,  expressly  includes  any  part- 
in  regard  to  the  joint  rights  and  nership  having  a  president  or  treas- 
property    of   the    association    and  urer. 


Suits  By  aud  Agaiust.  45 

ute  required  no  greater  formalities  in  that  respect  for  the 
formation  of  such  associations  than  for  the  formation  of 
ordinary  partnerships.  In  that  case  it  appeared  that  an 
association  existed  which  had  adopted  for  its  title  the  Old 
Saratoga  Union  St^re  Association.  It  had  more  than  fifty 
members,  but  there  were  no  Avritten  articles  signed  by  the 
membei*s,  nor  any  articles  of  incorporation,  except  a  con- 
stitution and  by-laws.  There  were  also  a  president  and 
board  of  directors.  The  president  of  the  association,  under 
authority  of  the  body,  made  certain  promissory  notes.  In 
an  action  on  these  notes  the  court  held  that  the  suit  was 
properly  brought  airainst  the  association,  in  the  name  of  the 
president ;  and  that  judgment  in  such  an  action,  and  exe- 
cution thereon,  bound  the  joint  property  of  the  association, 
anil  not  the  individual  property  of  the  president. 

In  the  cases  cited  in  the  notes  suits  were  instituted  against 
the  Stock  Exchange  in  the  name  of  its  president,  *  and  in  the 
State  of  New  York,  under  the  statutes  in  question,  there 
appears  to  be  no  legal  impediment  to  the  bringing  of  a  suit 
against  the  Stock  Exchange  in  the  name  of  the  president, 
treasurer,  or  other  olficer  named  in  the  act.'^ 

'  Heath  vs.  Prest.  Gold  Exchange,  121  N.Y.  284.     Suit  maybe  broiifrht 

7  Ab.  Pr.  (ii.  8.)  2.'>1;  s.  r.  38  How.  by     the     latter    E.xchanpe    in    tlie 

Pr.  1G.S;  White  vs.  Browiell,  3  .\b.  name  of  its  president.     Wilson  vs. 

Pr.  31S;  4  id.  1(32;  Sewell  vs.  Ives,  Gl  Conmiereial  Tel.  Co.,  3  X.  Y.  Supp. 

How.  Pr.  .>!;  Korke  vs.  Ru.s.sr-11,  2  033.     And    a    local    a.ssembly    (an 

Lan8.  (N.  Y.)  21.^;  Coininenial  Tel.  unincorporated l>odyU)f  llu- Kni^^hts 

Co.  vs.  Smith,  47  Ilmi,  4'.)4;  Weston  <if  Lalior,  may  sue  in  the  name  of  its 

V8.  Ive8,  97    N.    Y.    222;    Kuehn-  treasurer  (Co<ie  Civ.   Pro.  §  IDl'.t)- 

mundt  vs.  Smith,  2  N.Y.  Supp.  Ojr);  Wicks  vs.  Monihan,  54  Hun,  (»1G. 
lielton  vs.   Hatch,   109  N.  Y.  593;        » In  the  ca.se  of  Sewell  vs.  Ivc>«,  61 

Hai«ht   vs.    Uickcnnan,    IS   N.   Y.  II<»w.  Pr.  54,  the  f|uestion  was  di- 

Supp.   .'>59.     As  to  the  New  York  re<-tly  raised,  and  the  fonn  of  the 

Cfiiisolidated  Stock  and  Petroleum  artiun  against  the  Pre.si<lent  of  the 

Exchange,  sec  5f)   Hun,   HWi,   afT'd  Stock    E.\change   su-staineti,    under 


46  Stock-brokers  and  Stock  Exchanges. 

In  the  case  of  Rorke  vs.  Russell,  above  referred  to/  it  was 
held,  by  Mr.  Justice  Ingrahiun,  that  where  an  injunction 
was  issued  and  served  on  the  defendant,  in  an  action  against 
the  president  of  an  association  which  purported  to  restrain 
him  "  as  president "  of  tlie  association,  "  its  officers  and 
members,"  the  associates  to  whom  the  service  was  made 
known,  and  the  summons,  complaint,  and  order  were  read, 
at  a  meeting  of  the  association,  by  its  officers  acting  thereat, 
were  amenable  for  contempt  in  taking  proceedings  contrary 
to  the  prohibitions  of  the  injunction. 

The  New  York  statute  further  provides  that  after  judg- 
ment shall  be  obtained  against  any  joint-stock  company  or 
association,  and  execution  thereon  shall  be  returned  unsatis- 
fied in  whole  or  in  part,  suits  may  be  brought  against  any 
or  all  of  the  shareholders  or  associates,  individually  ;  but  no 
more  than  one  suit  shall  be  brought  or  maintained  against 

the  aforementioned  act.     See  also  459;    Bridenbccker   vs.   Hoard,    23 

Olery  vs.  Brown,  51  How.  Pr.  (X.  How.  Pr.  (X.  Y.)  2S9;  Austin  vs. 

Y.)  92.     It  is  immaterial  by  what  Scaring,  16  X'.  Y.  112;  Masterson  vs. 

name  the  chief  executive  officer  is  Botts,  4  Ab.  Pr.  Rep.  130;  X.  Y. 

called,  whether  president,  or  chair-  Marbled  Iron  Works  vs.  Smith,  4 

man  or  otherwise.     Hathaway  vs.  Duer  (X.Y.),  362;  East  River  Bank 

Am.  Min.  St.    Ex.,  31   Hun,  575.  vs.  Judah,  10  How.  Pr.  135;  Leon- 

For  cases   interpreting    §  1919,  X'.  ardville  Bank  vs.  Willard,  25  X.  Y. 

Y.  Code  Civ.  Pro.,  see  cases  cited  574;  People  vs.  Olmsted,  45  Barb, 

in    the    notes   to    that    section,    2  644,    647.     In    providing    by    sec. 

Bliss's  5th  ed.  Code  Civ.  Pro.     Also  1919  of  the  Code  that  actions  and 

Stover's,    6th    ed.,   and    the    cases  proceedings  may  be  brought  by  or 

cited  in  Birdseye's  Rev.   Statutes,  against  such  associations,  it  would 

Codes    and   Gen.    Laws   of  X'.  Y.,  be  a  forced  construction  to  hold  that 

vol.  2,  pp.  1953,  1954.     For  other  legal  process  of  everj-  kind  (such  as 

cases,  interpreting  the  statutes  of  mandamus)  available  against  pub- 

1849    and    1851,    see   Schmidt   vs.  lie  or  private  individuals  and  cor- 

Gunther,  5  Daly,  452.     Also  cases  porations   may  be  levelled  against 

cited  in  note  to  Ebljinghousen  vs.  unincorporated  associations.     Wei- 

Worth  Club,  4  Ab.  Xew  Cas.  311;  denfeld  v.  Keppler,  84  A.  D.  235; 

Tibbetts  vs.  Blood,  21   Barb.  650;  aff'd  68  X.  E.  1125. 

De  Witt  vs.  Chandler,  11  Ab.  Pr.  '  2  Lans.  (X.  Y.)  Rep.  245. 


Suits  By  and  Agaiust.  47 

said  shareholders  at  any  one  time,  nor  until  the  same  shall 
have  been  determined,  and  execution  issued  and  returned 
unsatisfied,  in  whole  or  in  part.' 

The  effect  of  these  statutes  permitting  an  unincorporated 
association  to  sue  and  to  be  sued  in  the  name  of  one  or  more 
of  its  officers,  has  been  to  remove  another  great  objection 
to  such  organizations,  and  to  make  them  equal  in  dignity 
and  efficacy  to  corporations. 

In  Pennsylvania  the  lirst  case  which  seems  to  have  arisen, 
involving  a  question  between  the  Pliiladelpliia  Stock  Ex- 
change and  its  members,  was  that  of  Leech  vs.  Harris.^ 
There  a  bill  was  filed  to  prevent  the  plaintiff  from  being 
suspended  as  a  member  of  the  Exchange.  In  that  case  a 
committee  of  the  Exchange  was  appointed  by  the  president 
to  investigate  a  certain  claim  against  the  plaintiff.  Appre- 
hending that  the  committee  would  suspend  him,  the  plain- 
tiff asked  for  an  injunction.  The  action  was  brought  against 
the  membei'S  of  the  committee  as  a  "  Committee  and  Mem- 
bers of  the  Board  of  Brokers,"  and  no  objection  seems  to 
have  been  taken  to  this  form  of  the  action,  the  injunction 
being  granted  ])reventiMg  the  plaintiff's  expulsion. 

In  another  case  ^  the  action  was  brought  against  the 
"  Treasurer  of  the  Board  of  Brokers  and  the  Philadelphia 
Board  of  Hrokers  ;  "  and  in  a  ])ri'vious  case.  Leech  vs.  Leech,* 
"the  Board  of  Ln^kers"  were  made  garnishees. 


'  Laws,   1840,    ch.    2r).S,    §  I,    jus  XoIrs  Cas.  (Pa.)  511,  .'il'J,  and  soe 

amended,    L.    lS.5.'i,    ch.    IT).!,    and  Leech  vs.  Leech,  id.  54"J,  where  a 

since  the  text  waa  written  embodied  suit    was    brought    aj^ain.st    "The 

in   ii  1922,   1923,  N.  Y.  Code  Civ.  Hoard     of     Brokers,"     garnishees. 

Pro.     See    Humbert    vs.    Abeei,    7  .Mso  Evans  vs.  Wi.stcr,  infra. 

Civ.  Pro<-.  H.  417.  *  Id.  542,  note. 

'2  Brews. (Pa.)   571. 

'  SinKcrly  vs.  Johnson,  A  Weekly 


48 


Stock-brokers  and  Stock  Exchauges. 


So  in  the  case  ol"  Moxe3''s  Appeal,  decided  by  the  Supreme 
Court  of  Peimsylvania  iu  January,  18S1,*  wLiere  th(i  action 
was,  ill  equity,  to  restrain  defendants,  */?^tv'  alia,  from  inter- 
fering with  phiintiff's  right  and  privilege  of  using  his  seat 
in  the  board,  the  bill  was  filed  against  "  The  Philadelphia 
Stock  Exchange,  A.  B.,  president  thereof."  "^ 

In  \\Q\y  of  these  authorities,  there  would  seem  to  be  no 
difficulty,  in  the  State  of  Pennsylvania,  in  maintaining  an 
action  against  the  Exchange  as  a  body,  without  joining  the 
individual  members.^ 


>  9  Weekly  Notes  Cas.  441,  aff'g 
37  Legal  Int.  82. 

*  See  also  Evans  vs.  Wister,  1 
Weekly  Notes  Cas.  181.  In  Pan- 
coast  vs.  Gowen,  93  Pa.  66,  an  at- 
tachment execution  was  sought 
against  Henry  Gowen  and  others 
trading  as  the  Philadelphia  Stock 
Exchange,  garnishees,  and  no  ob- 
jection was  made  to  the  form  of 
the  proceeding.  In  Cochran  vs. 
Adams,  180  Pa.  St.  489,  certain 
officers  of  the  Philadelphia  Stock 
Exchange  were  sued  without  objec- 
tion being  raised  as  copartners 
trading  as  the  Philadelphia  Stock  Ex- 
change. The  action,  however,  was 
not  to  charge  them  as  partners  but 
to  reach  a  particular  fund  in  their 
official  custody.  See  also  Shep- 
pard  vs.  Barrett,  17  Phil.  145.  In 
Liederkranz  Singing  Society  vs. 
Tum-Verein,  163  Pa.  St.  265,  fol- 
lowed in  Powell  vs.  Dunn,  7  Pa. 
Dist.  R.  275,  it  was  held  that  in  the 
case  of  unincorporated  associations 
whose  membership  is  large,  suit 
may  be  brought  bj'  some  of  the  mem- 
bers on  behalf  of  all,  but  if  the  ac- 
tion is  brought  in  the  name  of  the  as- 


sociation by  certain  of  its  members, 
the  plaintiff  cannot  be  nonsuited 
for  want  of  parties,  when  there  is  no 
plea  in  abatement,  and  the  plain- 
tiffs are  responsible  for  costs.  This 
case  was  also  followed  in  Sparks  vs. 
Husted,  5  Pa.  D.  R.  189;  Virtue  vs. 
loka,  id.  634.  But  an  action  at 
law  is  not  maintainable  against  an 
unincorporated  beneficial  society. 
McDonnell  vs.  Trustees,  24  Pa.  C. 
C.  40.  And  it  is  still  the  law  in 
Pennsylvania  that  an  unincorpo- 
rated association  cannot  be  sued  as 
such.  McConnell  vs.  Apollo,  146 
Pa.  St.  79. 

^  See  ante,  p.  41,  n.  1,  for  statutes 
of  Pennsylvania  relating  to  suits 
against  unincorporated  joint-stock 
associations.  By  P.  L.  1890,  p.  353, 
service  on  unincorporated  associa- 
tions for  business  purposes  may  be 
made  on  any  officer.  And  by  P.  L. 
1901,  p.  614,  service  on  limited 
partnerships,  etc.,  may  be  made  on 
any  officer  or  agent.  See  Camden 
vs.  Guarantors,  35  A.  796.  In  the 
case  of  Kurz  vs.  Eggcrt  (9  Weekly 
Notes  Cas.  126),  the  plaintiff  brought 
an  action  of  assumpsit  against  the 


Suits  By  aud  Against.  49 

There  seems  to  be  no  statute  in  ]\Iassacbii setts  providing 
for  the  bi-ingitig  of  actions  by  or  against  voluntary  associ- 
ations, in  the  name  of  their  officers  or  otherwise.  Nor  are 
there  any  laws  declaring  the  status  or  regulating  the  man- 
asement  of  such  bodies.  But  such  associations  have  been 
recognized  as  legal,  and  suits  have  been  brought  against, 
and  in  the  name  of,  their  trustees.  But  the  actions  were 
brought  in  respect  to  contracts  made  with  trustees,  by 
name,  and  their  successors,  of  such  associations.* 

Under  the  General  Statutes  of  Connecticut  actions  and 
suits  may  be  brouglit  by  and  against  voluntary  associations 
as  such,  and  judgment  may  be  had  and  execution  issued 
against  them.'^  It  has  been  held  that  such  an  association 
may  compromise  a  suit  brought  against  it.^  Formerly 
it  could  not  be  sued  by  a  member.^     But,  by  section  588 

president,  a  trustee,  and  the  treas-  See  also  Edwards  vs.  Warren,  168 

urer    of    The     Augusta    Teutonia  Mass.  564.     In  a  case  in  California 

Lodge,  No.  34  Deutsche  Order  of  (Rorke    vs.    San    Francisco    Stock 

Hamgari,  an  unincorporated  bene-  Exchange    Board,  99  Cal.  196)  the 

ficial    association,    to    recover    the  plaintiff   sought   b}'   mandamus   to 

amount  to  be  paid  during  the  sick-  compel  his  restoration  to  member- 

ness    of    plaintiff.     The    defendant  ship  in  the  defendant,  an  unincor- 

dcmurrcd,  on  the  ground  that  plain-  poratcd  voluntary  association.     No 

tiff  could  not  maintain  an  action  at  objection    appears    to    have    been 

law  against  the  officers  of  the  a.sso-  made  to  the  form  of  remedy.     But 

ciation.     The  court  held  that,  not-  in  a  prior  case  in  that  State  it  was 

withstanding  the  act  of  ,\pril  28,  held  that  the  Exchange  could  not 

1876  (P.  L.  53,  Purd.   Dig.   1981),  be  sued  by  its  common  name  under 

declaring  that  such  benefits  Hhall  be  the  Code  Civ.  Proc.  §  3S8,  as  it  was 

paid  from  the  trca-sury  only,  such  not  engaged  in  any  bu.'<ine.'!s.     Swifts 

ivwic'iiiUona    still    continue    to    be  vs.  S.  F.  S.  »t  E.  Board,  67  Cal.  567. 

partnerships,    and   that  the   action  '  Cien.   Stat.  Conn.  Rev.  of  1902, 

wa.s  improperly  brought.     See  also  §  .')S8. 

Rivers    vs.    Fame,    11    C.    C.    241;  '  .\ncient   Order  of  Foresters  vs. 

Manning  vs.  Klein,  1 1  C.  C.  525.  Court  Abraham  Lincoln,  40  .\.  606. 

'  .Mf-rrill   vr.   Mclntyre,   13  Gray,  *  Huth  vs.    Humboldt,   61    Conn. 

157;  Baxter  vs.  M<Intyre,  13  Gray,  227,  contra  McCabe  vs.  Coodfellow, 

108;   Delano  vs.   Wild,  0  .Mien,   1.  01  Hun,  019. 

4 


50  Stock-brokers  and  Stock  Exchanges. 

of  the  General  Statutes  (Revision  of  1902),  a  member  may 
sue  the  association,  which  may  also  sue  a  member. 

It  is  optional  with  a  creditor  of  such  an  association  to 
sue  the  association  as  such,  in  which  case  he  can  only 
lew  on  its  ])roperty ;  or  to  sue  the  members,  in  which 
case  the  members  are  individually  liable.'  Under  section 
573  of  the  General  Statutes,  service  of  process  in  actions 
against  voluntary  associations  may  be  made  upon  the  pre- 
siding officer,  secretary  or  treasurer. 

In  Colorado  two  or  more  persons  associated  in  business 
under  a  common  name  may  be  sued,  by  such  name.^  An 
unincorporated  association  may,  under  this  section,  be  sued 
by  the  name  under  which  it  did  business.^ 

And  a  similar  statute  has  been    enacted  in  ^Minnesota.'* 

In  Kentucky  an  association  consisting  of  over  3,000 
members  will,  under  the  Constitution  and  statutory  enact- 
ment, be  treated  as  a  corporation  for  the  ])urpose  of  process.^ 

In  Texas  suit  may  brought  by  an  unincorporated  society 
by  its  name,  if  the  petition  describes  it  as  a  voluntary 
association  composed  of  certain  named  persons  as  plain- 
tiffs, and  there  is  no  allegation  of  incorporation.^ 

In  Ohio  a  few  indivitluals  may  sue  or  be  sued  as  repre- 
sentatives of  a  class.'' 

In  Illinois  a  voluntary  association  may  be  sued  in  equity 

*  Davison  vs.  Holden,  55  Conn.  *  Adams  Express  Co.  vs.  Scho- 
103.  field,  64  S.  W.  (Ky.)  903.     But  see 

'Code,  §  11.  48  S.  W.  (Ky.)  1091. 

'  Endowment  Rank  (Knights  of  •  Ackerman  vs.  Ackerman,  60  S. 

Pj-thias),  53  P.  (Col.)  285.  W.  (Tex.)  366. 

*  Gen.  St.  1878,  ch.  66,  §  42;  Gale  '  American  Steel  &  Wire  Co.  vs. 
vs.  Townsend,  45  Minn.  357.  See  Wire  Drawer's  Unions,  90  Fed. 
as  to  this  subject  pencrallj',  Ameri-  598. 

can   Digest    (Century   ed.),   vol.   4, 
p.  2536  et  seq.,  and  Annuals, 


Suits  By  aud  Against.  51 

as  such  if  it  is  a  de  facto  corporation,  viz.,  if  it  has  an  or- 
ganization consisting  of  directors,  president,  secretary  and 
other  oificers,  if  its  name  implies  a  corporation,  and  if  it 
exercises  corporate  powers.  AYhen  its  members  are  numer- 
ous, service  of  process  upon  a  part,  Avho  act  for  other 
members  as  well  as  themselves,  is  sufficient.  If  the  members 
are  scattered  all  over  the  United  States  and  Canada,  service 
on  the  secretary  will  suffice,^  but  in  a  common-law  action 
all  the  members,  lunvever  numerous,  must  join.- 

In  Missouri  a  judgment  cannot  be  I'endered  in  favor  of 
or  against  an  unincorporated  association  as  such.^ 

A  statute  similar  to  the  New  York  statute  was  enacted 
in  Michigan  in  1897  (Comp.  L.  §  §  10,025-G).  But  the 
statute  does  not  take  away  the  right  to  sue  the  members 
individually.^     This  statute  is  constitutional."' 

In  Georgia  an  objection  that  all  the  beneficiaries 
of  a  voluntary  association  should  bo  ])arties  to  a  suit 
against  it,  must  be  taken  by  special,  and  not  by  general, 
demurrer.* 

There  is  another  class  of  cases  which  should  be  referred 
to  in  this  connection,  viz.,  where  instruments  are  given  to 
unincorporated  associations  whereby  money  is  secured  and 
made  payable  to  some  oilicer  of  the  company  and  his  ".«.*/r- 
cessors  in  ojice.'"  A  number  of  tin;  English  cases  hold  that 
eflFect  cannot  be  given  to  such  an  instrument,  it  being  an 
attemj)t  to  prcjvidc  for  j);iyni('nt  to  ollicial  successors  ;  that 
it  is  in  law  c(mstituting  tli(;  ollicer  a  corporation  sole,  which 

'  Fitzputrick  vh.  Kuttcr,   1(10  III.  *  .FciikiiiNoii    vh.    NNysncr,     SiJ    .N. 

282.  \V.   lorj. 

*  O'Connell  vh.  Luinl),  (V.i  111.  *  Unitod  Stutc-H  Co.  vs.  Union, 
App.   G.'}2.  SS  N.  VV.  (Midi.)  SK9. 

*  Hujek  VH.  Bohemiuti  Society,  60  *  IMuiil  vh  DickerMon,  •l.'i  S.  E. 
Mo.  App.  rm.  (Gu.)  483. 


52  Stock-brokers  uud  Stock  Exchanges. 

cannot  be  done  by  agreement,  but  must  be  done  by  the 
crown.' 

In  such  a  case  it  would  seem  that  the  right  of  action  at 
common  law  (unless  affected  by  statute)  on  a  contract  made 
with  several  persons  jointly  passes  on  the  death  oF  each  to 
the  survivors,  and,  on  the  death  of  the  last,  to  his  repre- 
sentatives.^ 

In  the  United  States,  however,  the  law,  in  some  of  tlie 
States,  is  different ;  and  it  is  held  tbat  the  right  to  sue 
exists  in  the  subsequent  incumbent  of  the  office;  at  all 
events,  where  the  engagement  or  undertakmg  is  for  the 
benefit  of  some  public  or  quasi-\)uh[ic  body.^ 

There  have  been  some  decisions,  as  to  the  effect  of  the 
recovery  of  a  judgment  against  these  non-incorporated 
associations,  which  it  may  not  be  amiss  to  refer  to  in  this 
connection. 

Where  a  judgment  is  recovered  against  the  president  of 
an  association  for  a  debt  owing  by  the  latter,  it  does  not 
preclude  individual  members,  when  sued  for  the  same  debt, 
from  contesting  their  liability  for  the  debts  of  the  associa- 
tion. 

A  suit  against  the  president  is  necessary,  in  the  first  in- 
stance, by  the  express  terms  of  the  statute,  before  an  action 
against  the  members  can  be  maintained;  but  the  judgment 
therein  is   only  so   far  effective  as   to  reach  the  property 

'  Dance  vs.  Girdler.  4  B.  &  P.  40;  209;  Gray  vs.  Pearson,  5  L.  R.  C.  P. 

Strange  vs.  Lee,  3  East,  4S4;  Graves  568;  Evans  vs.  Hooper,   L.  R.  1  Q. 

vs.  Colby,  per  Lord  Denman,  9  Ad.  B.  D.  45;  Howley  vs.  Knight,  14  Q. 

&   E.   356;   Metcalf  vs.    Bruin,    12  B.    240. 

East,  400;  also,  2  Camp.  422;  Pigott  ^  Dicey  on  Parties,  12S. 

vs.  Thompson,  3  B.  &  P.  147;  but  ^  Fishe  vs.   Ellis,   20  Mass.  532, 

see   this   latter   case   explained    in  Kean  vs.  Franklin,  5  Serg.  <fc  R.  154; 

Bowen  vs.  Morris,   2  Taunt.   381 ;  Commonw.  vs.  Shurman's  Adm.,  18 

Hybart  vs.  Parker,  4  C.  B.  (n.  s.)  Pa.  St.  (6  Har.)  347. 


Suits  By  and  A{j;aiiist.  53 

owned  by  the  association  ;  when  it  fails  to  secure  satis- 
faction of  the  debt,  then  an  action  against  the  associates 
directly  to  enforce  the  payment  of  the  debt  out  of  their 
own  individual  property  is  proper.* 

At  most,  a  judgment  against  the  ])resident  can  be  no  more 
than  prima  facie  evidence  in  the  plaintiff's  favor  in  a  sub- 
sequent action  against  the  associates.  It  will  not  sustain 
his  right  to  recover,  where  the  evidence  shows  that  the 
judgment  so  recovered  exceeds  the  amount  for  which  the 
association  or  its  members  were  liable  in  the  action.' 

The  statutes  of  New  York  also  provide  that  whenever  the 
property  of  a  joint-stock  association  is  represented  by  shares 
of  stock,  such  association  may  ])rovide,  by  articles  of  associ- 
ation, that  the  death  of  any  stockholder,  or  assignment  of 
his  stock,  shall  not  work  a  dissolution  of  the  association  ; 
nor  shall  said  company  be  dissolved,  except  by  judgment  of 
a  court,  for  fraud  in  its  management,  or  other  good  cause  to 
such  court  shown,  or  in  pursuance  of  its  articles  of  associ- 
ation.' 

Under  this  section  it  has  been  decided,  in  the  State  of 
New  York,  that  a  dissolution  of  a  joint-stock  company  is  to 
be  conducted  mainly  according  to  the  methods  employed  in 

'  This  is  changed  by  §  1923,  N.  Y.        '  Allen  vs.  Clark,  O.')  Hurl).  503; 

Code  Civ.  Pro.,  and  an  action  may  Withcrhead  vs.  Allen,  4  Ab.  (N.  Y.), 

be  maintained  in  the  first  instance  App.  628,  reversing  28  Barb.  G(il ; 

again-st  all  the  members.    Schwartz  Kin^^sland  vs.  Hrai.sted,  2  Lans.  17; 

vs.    Wechler,   21i    Abb.    .\.   C.   3.T2;  H(.l)ljin.s  vs.  Wells,  iRobt.  (N.  Y.) 

Hudson  vs.  Spalding,  0  N.  Y.  Supp.  GOO.     If  the  treiLsiirer  of  a  volun- 

S77;  Humbert  vs.   .\beel,  7   .N.  Y.  tary  lusKocialion  ^ivosa  note  as  such, 

Civ.  Pro.  Rep.  417,  opposinn  I'lii;.'^  he  is  iidt    personally    liable,  l)ut  ho 

vs.  Swift,  ITi  Hun,  023,  and  di.stiii-  thereljy     binds    all    the    nicn>l>ini 

RuishinK   Witherhead    vs.    Allen,   4  Kierstead  vs.  liennett,  93  Me.  3Ja. 
Abb.  Ct.  App   028.     See  also  April        '  F.aws,   1854,  cli.  245. 
vs.  Baird,  52  Supp.  973. 


64  Stock-brokers  and  Stock  Exchanges. 

the  case  of  insolvent  corporations,  and  not  according  to 
those  derived  from  the  hiw  of  simple  partnerships.' 

The  causes  for  which  the  courts  will  dissolve  such  bodies 
are  either  those  for  which  a  dissolution  is  specifically  pro- 
vided in  the  constitution,  or,  where  that  instrument  is  silent 
upon  the  subject,  a  dissolution  will  be  decreed  in  the  same 
cases  as  a  corporation.' 

This  statute  (Laws,  185-i,  ch.  245)  was  repealed  by  the 
Joint  Stock  Association  Law  (Laws  of  1894,  ch.  235),  sec- 
tion 2  of  Avhich  provides  that  the  articles  of  a  joint-stock 
association  nuiy  (1)  provide  that  the  death  of  a  stockholder, 
or  the  transfer  of  his  shares,  shall  not  work  a  dissolution  of 
the  association  ;  (2)  prescribe  the  number  of  its  directors, 
not  less  than  three,  to  have  the  sole  management  of  its 
affairs  ;  (3)  contain  any  other  provision  for  the  management 
of  its  affairs  not  inconsistent  with  law.  Section  5  provides 
that  a  joint-stock  association  shall  not  be  dissolved  except 
in  pursuance  of  its  articles  of  association,  or  by  consent  of 
all  its  stockholders,  or  by  judgment  of  a  court  for  fraud  in 
its  management,  or  for  good  cause  shown. 

It  can  scarcely  be  contended  that  tiie  Joint-Stock  Associ- 
ation Law  would  include  unincorporated  associations  like 

'  Waterbnry  vs.  Mer.  Union  Ex.  ment  will  be  rendered  at  the  suit  of 
Co.,  50  Barb.  157,  s.  c,  3  Ab.  Pr.  one  or  more  members  a^;ainst  all  the 
(n.  s.)  163.  others  dissolving;  the  society;  but 
'  There  arc  some  reported  cases  they  should  not  be  dissolved  for 
where  the  courts  have  been  asked  to  slight  causes,  and,  if  at  all,  only 
dissolve  these  unincorporated  asso-  when  it  is  entirely  apparent  that 
ciations,  and  it  might  not  be  unprof-  the  organization  has  ceased  to  an- 
itable  to  refer  to  a  few  of  them  in  swer  the  ends  of  its  existence  and 
this  connection.  no  other  mode  of  relief  is  attain- 
Thus  it  has  been  held  that  in  case  able.  Lafond  vs.  Deems,  1  Ab.  New 
of  violent  dissensions  and  irreconcil-  Cas.  (N.  Y.l  318;  81  N.  Y.  507; 
able  differences  between  the  mem-  Fischer  vs.  Raab,  C.  P.,  Sp.  T.,  51 
bers  of  a  voluntary  association  judg-  How.  Pr.  57. 


Suits  By  iiud  Against.  55 

the  New  York  Stock  Exchange  within  its  purview,  inas- 
much as  the  definition  of  joint-stock  associations  could  not, 
as  has  been  already  stated  (a/tte,  p.  37),  be  held  to  apply 
thereto,  and  as  there  are  substantial  changes  made  in  the 
statute  as  re-enacted,  the  provision  of  the  Statutory  Con- 
struction Law,  section  32,  continuing  a  statute  so  re-enacted, 
would  be  scarcely  applicable.'  Besides,  the  seventh  section 
of  the  Joint-Stock  Association  Law  contains  provisions  as 
to  increase  or  reduction  of  capital  stock,  etc.,  which  clearly 
indicate  the  legislative  intent  to  confine  its  operation  to 
joint-stock  associations,  as  such  associations  are  usually  un- 
derstood, and  not  to  unincorporated  stock  exchanges  with- 
out capital  stock,  directors,  articles  of  association,  or  termi- 
nable existence. 

There  is  no  provision  in  the  constitution  or  by-laws  of  the 
New  Yoik  Stock  Exchange  relative  to  its  dissolution ;  and 
were  the  period  to  arrive  when  its  dissolution  should  be 
asked  for,  the  question  W(nild  probably  be  determined  cither 
by  a  court  of  equity  in  an  equitable  action  to  compel  its  dis- 
solution or,  if  they  could  be  held  applicable,  by  the  statutes 
above  referred  to,  together  with  such  cases  as  have  been  de- 
cided under  tliein.* 

'  Mcl.oughlin   vs.   En  Hit  z,   .50   A.  urr,  providing  that  where  a  niajor- 

D.    518.  ity  of  tlic  trustees  f;iv(ir  cli.><sohiti()n, 

'  Where  the  iiitere.sts  of  the  stork-  and  it  appears  tluit  a  di.ssolution 
holders  of  an  unirieorporated  l>u.si-  will  be  beiiefieial  to  the  interests 
nes8  Exchanf^e  are  so  di.seordaiit  as  of  the  stoekliolders,  .  .  .  the 
to  prevent  effective  management,  eourt  mvLst  make  a  final  order  dia- 
and  a  lar^e  majority  of  both  tnis-  holvinK  tlie  corporation.  Under 
t^-es  and  members  wish  to  wind  up  such  circtnnstanees  it  is  better  for 
it8  affairs,  dis.Holiition  ami  distribii-  all  that  a  dissolution  should  be 
tion  of  the  iuvs<^4s  amonir  the  stock-  ordere<l,  so  that  a  majority  niay  re- 
holders  will  be  bf-neficial  to  the  in-  incorporate  upon  some  more  prac- 
tcre«tfl  of  thf  stockhoMcrs,  within  tical  lnwis.  if  thev  so  desire,  and 
section  2429,  Code  of  Civil  Vn>('<\-  ili  •    tn.ijorif v    inav    no   longer   be 


5t) 


Stock-brokers  and  Stock  Exchanges. 


Under  the  present  laws  of  the  Stock  Exchange  of  New 
York,  there  would  ajipcar  to  be  little  difficulty  in  dividing 
its  property  if  a  dissolution  were  to  take  place.  By  dividing 
the  property  by  the  number  of  seats,  the  result  would  clearly 
appear.  But  as  there  has  arisen  considerable  dispute  upon 
the  dissolution  of  voluntary  societies,  a  number  of  cases  are 
collected  in  the  notes  which  show  upon  what  principle  and 
by  what  methods  the  court  directs  a  distribution  in  those  in- 
stances where  the  regulations  or  laws  of  the  associations 
have  left  the  matter  unsettled  or  in  doubt.^ 


forced  to  keep  up  a  feeble  and  use- 
less organization,  in  which  they 
take  no  interest,  and  from  which 
they  derive  no  benefit.  In  re  Im- 
porters &  Grocers'  Exchange  of 
New  York,  132  N.  Y.  212;  8  N.  Y. 
Supp.  319,  affirmed. 

'In  Brown  vs.  Dale,  27  W.  R. 
149,  in  the  chancery  division  of  the 
English  Court,  the  Master  of  the 
Rolls  held  that  where  a  voluntary 
society  has  a  fund — in  this  case 
arising  on  the  sale  of  some  of  their 
real  property — there  being  no  rule  of 
the  society  nor  any  express  obliga- 
tion to  the  contrar>%  the  members, 
at  a  given  time,  were  entitled  to 
di\'ide  the  fund  among  themselves; 
hence,  that  new  members  coming  in 
after  such  a  determination,  though 
before  actual  division,  could  not 
share,  nor  insist  that  the  fund  be 
invested  and  only  income  di^^dcd. 

A  minority  have  the  right  to  en- 
join the  majority  from  distributing 
the  funds  amonc  the  members  in  a 
manner  different  from  that  provided 
by  the  con.stitution  without  a  vote, 
according  to  the  constitution,  to 
make  the  necessary  alteration.     So 


held  in  the  case  of  a  benefit  society, 
although  for  fifty  years  there  had 
never  been  a  call  for  relief  upon  the 
society  pursuant  to  its  articles,  and 
the  fund  was  the  accumulation  of 
voluntary  assessments,  all  made 
more  than  forty  years  before  the 
suit.  Torrey  vs.  Baker,  83  Mass. 
120. 

Where  a  sale  and  distribution  of 
the  property  in  a  certain  period  is 
positively  provided  for  by  private 
articles  of  association,  any  of  the 
shareholders  have  a  right  to  insist 
upon  the  sale  and  distribution  ac- 
cording to  the  articles,  though  it 
may  not  be  for  the  interests  of  the 
concern,  or  may  be  against  the  will 
of  the  majority.  Mann  vs.  Bulter,  2 
Barb.  Ch.  362. 

A  club  formed  for  the  purpose  of 
relieving  its  members  from  draft, 
provided  that  the  sum  of  $300 
should  be  paid  to  every  member 
who  should  volunteer  or  put  in  a 
substitute.  The  funds  of  the  asso- 
ciation were  paid  by  its  treasurer  to 
the  defendants,  who  were  not  mem- 
bers, upon  the  agreement  that  they 
would  fill  the  quota  of  the  whole 


Rules  aud  Regulations. 


57 


Till.  Rules  aud  Regulatious  of  Stock  Exchanges. 

(a)  General  Power  to  Make  Hides,  etc. 
By  the  13th  Article  of  the  constitution  of  the  New  York 


township.  The  plaintiff,  a  member 
of  the  club,  was  drafted,  and  put  in 
a  substitute.  Held  that  the  fund 
passed  to  the  defendants,  covered 
with  a  trust  to  pay  it  according  to 
the  terms  of  the  subscription;  that 
they  stood  in  the  position  of  the 
club;  and  that  the  plaintiff  was  en- 
titled to  his  share  of  the  fund .  Foley 
vs.  Tovey,  54  Pa.  St.  190.  And 
where  the  majority  of  the  members 
of  a  lodge  withdraw  and  form  a  new 
lodge  imder  the  old  name,  the  mi- 
nority who  remain  are  entitled  to 
the  property  of  the  old  lodge.  Alt- 
man  vs.  Benz,  27  N.  J.  Eq.  331. 

Divers  persons  subscribed  various 
sums  to  assist  an  unincorporat(>d 
musical  association  to  erect  a  build- 
ing for  their  use  a-s  a  bund.  Held 
that  these  subscriptions  were  abso- 
lute gifts  to  the  members  of  the 
association,  and  that  the  building 
erected  by  means  of  them  and  of 
funds  otherwise  obtained  was  owned 
by  the  memliers  as  tenants  in  com- 
mon. Higgins  vs.  Ridddl,  12  Wis. 
587. 

An  agreement  under  seal  that 
"we,  the  owners  in  the  II  farm, 
hereby  agree  to  any  division  of  the 
remaining  portion  of  «aid  farm  un- 
sold, which  a  majority  of  interest  in 
said  property  shall  deride  upon  as 
fair  and  equitable,"  licld  to  ref<>r 
to  tin-  mode  of  division,  and  not  to 
authf)ri7-e  the  majririty  in  interest 
to  Hft  off  to  any  owner  a  certain 
portion  of  land  without  Ium  uMsent. 


Harkness  vs.  Remington,  7  R.  I. 
154. 

An  association  was  formed  for  the 
purpose  of  obtaining  gold  in  Cali- 
fornia. By  the  articles  each  agreed 
to  pay  $25  to  furnish  an  outfit  for, 
and  to  pay  the  expenses  of,  eight  of 
their  number,  to  be  elected  by  the 
members  to  go  to  California  and 
labor  for  the  association  in  procur- 
ing gold;  and  that  from  the  prod- 
ucts of  their  labor  their  expenses 
should  be  first  paid,  and  of  the  resi- 
due one  half  should  be  divided 
among  the  eight  and  the  remainder 
among  all  the  members.  The  eight, 
on  arriving  in  California,  sold  their 
ovitfits,  divided  the  proceeds,  and 
each  one  took  his  own  way.  One  of 
the  eight  returned  to  Oliio,  and  a  bill 
was  filed  to  compel  him  to  account. 
Held  that  the  eight  meml)ers  of  the 
associations  stood  in  relation  there- 
to in  the  character  of  employes,  and 
that  their  acts,  on  arriving  in  Cali- 
fornia, did  not  discharge  them  from 
any  f»f  tlu'ir  ol)ligations  to  it.  Eagle 
vs.  Buchcr,  0  Ohio  St.  295. 

B  was  a  member  of  the  "Che- 
shire Company,"  and  A  and  B  a<l- 
vanced  $500  each,  whicli  was  ])aid 
by  B  as  his  contriljution  thereto, 
with  the  agreement  that  they  should 
share  in  certain  proportions  the 
profits  of  the  enterprise,  and  that 
tlu!  directors  of  the  comi)any  might 
retain  A'h  share  as  his  attorneys. 
B  sold  his  interest  tlierein  at  an  ad- 
vance of  $1,000  before  tlie  conii)any 


58 


Stock-brokers  and  Stock  Exchanges. 


Stock  Exchange/  every  person  elected  to  membership,  is  re- 
quired, before  he  shall  be  admitted  to  the  pi-ivileges  thereof, 
to  sign  the  constilution  and  by-laws,  and  by  sue! i  signature 
})ledge  himself  to  abide  by  the  same,  and  all  amendments 
thereto. 

The  general  effect  of  a  rule  like  the  above  will  l)e  first  con- 
sidered, and  afterwards  reference  will  be  made  to  such  ]Kir- 
ticular  rules  as  are  important,  or  have  been  made  the  sub- 
ject vf.  legal  interpretation. 


realized  any  profits  to  the  other 
members.  Held  that  A  was  enti- 
tled to  receive  his  stipulated  portion 
of  that  advance  as  profits.  Rich- 
ardson vs.  Dickinson,  26  X.  H.  (6 
Fost.)  217. 

A,  the  owner  of  a  share  of  the 
outfit  of  a  California  fjold  company, 
sold  to  B  "one  half  of  his  interest 
in  the  company;"  but  the  writing 
provided  that  B  shovild  not  be  a 
partner  in  the  company,  but  only 
"purchaser  of  A'a  interest  in  the 
metals  and  ores"  that  might  be  ob- 
tained. Held  that  B  acquired  no 
interest  in  the  outfit.  PhiUips  vs. 
Jones,  20  Mo.  67. 

The  defendants,  owners  of  min- 
eral lands,  entered  into  a  wTitten 
agreement  with  the  plaintiff,  recit- 
ing their  intention  either  to  sell  the 
lands  or  to  form  a  joint-stock  com- 
pany for  the  working  of  the  mines 
thereon;  and  promising,  in  consid- 
eration of  services  rendered  and  to 
be  rendered  by  the  plaintiff,  to  pay 
to  him  a  certain  sum  out  of  the  pro- 
ceeds of  the  sale  of  the  lands,  if  the 
same  should  be  sold,  or,  if  they 
should  not  be  sold,  and  a  company 
should  be  formed  for  workmg  the 
mines,  then  to  convey  to  him  stock 


to  that  amount;  and  the  plaintiff, 
on  his  part,  agreed,  in  consideration 
of  the  foregoing  agreements,  to  re- 
main in  their  service  as  long  as  they 
might  require,  not  exceeding  one 
year,  for  a  fixed  salary  and  a  house 
and  land  free  of  rent.  Held  that 
the  defendants  were  not  bound  to 
sell  the  land,  nor  to  form  a  joint- 
stock  company,  until  by  using  rea- 
sonable efforts  it  should  be  for  the 
mutual  interest  of  all  the  parties 
concerned;  and  where,  without  neg- 
ligence on  their  part,  they  had  failed 
to  do  so,  although  more  than  seven 
years  had  elapsed,  that  the  plaintiff 
has  no  claim  upon  them  in  equity, 
except  for  the  stipulated  salary. 
Pinch  vs.  Anthony,  10  Allen 
(Mass.)  470.  Where  the  members 
unanimously  agree  to  incorporate, 
the  association  is  thereby  dissolved, 
aTid  the  members'  rights  transferred 
to  the  corporation.  Red  Polled 
Club  vs.  Red  Polled  Club,  78  N.  W. 
(Iowa)  803.  The  consent  must  be 
imanimous.  Schiller  vs.  Jaennich- 
en,  74  X.  W.  (Mich.)  458;  Associate 
vs.  Seminary,  49  Supp.  745.  See 
also  American  Digest,  vol.  4,  p. 
2544,  and  Annuals. 

•  As  amended  to  April,  1903 


Rules  and  Regulations.  59 

It  is  well  settled  that  before  a  member  of  an  unincor- 
porated association  is  bound  by  the  constitution  and  by- 
laws of  a  society,  it  must  appear  that  he  personally  assented 
to  the  same.^  This  assent,  however,  need  not  necessarily 
be  based  upon  an  actual  signing  of  the  by-hi\vs  or  rules,  but 
it  may  be  inferred  or  presumed  from  the  circumstances  of 
each  case,  and  especially  from  the  fact  of  admission  and 
actino;  as  a  member.^  And  it  seems  that  where  an  associ- 
ation,  thi'ough  a  committee  or  otherwise,  seeks  to  suspend 
or  expel  a  member  for  acts  not  provided  for  in  the  by-laws 
or  constitution,  or  by  an  ex  post  facto  resolution,  the  courts 
will  interfere  by  injunction  to  prevent  the  same.^  So  a  mem- 
ber of  a  Stock  Exchange  is  bound  by  a  by-law  passed  while 
he  is  a  member,  whether  he  votes  for  it  or  not.^ 

As  to  the  limit  and  extent  of  the  rules  which  such  an 
organization  can  adopt,  it  appears  to  be  established  that 
its  members  possess  the  right  to  make  such  regulations  for 
the  government  of  the  body  as  they  may  deem  proper,  pro- 
viding that  they  contain  nothing  unreasonable*  or  against 

'  Austin  vs.  Scaring,  IG  N.  Y.  112;  ultra  their  rules,  or  whore  the  latter 
Heath  vs.  Prest.  Gold  Exchange,  7  conflict  with  the  established  prin- 
Ab.  Pr.  (n.  s.)  251.  Ry-laws  are  of  ciplos  of  law.  Commercial  Tele- 
equal  obliRation  with  the  con.stitu-  gram  Co.  vs.  Smith,  47  Hun,  494- 
tion.  Jackson  vs.  South  Omaha  505. 
Live  Stock  E.xchanRe,  49  Xeb.  0,S7.  *  MacDowell  vs.  Aekley,  S  Week. 

'  Innes  vs.  Wylie,  1  Car.  it  K.  2G2;  Notes  Cas.  4G4. 

Brancker  vs.  Roberts,  7  Jur.  (n.  s.)  *  No  member  is  bouiul  by   a  by- 

1185;    Hopkinson    vs.    Marquis    of  law    which     is    unreasonable    and 

Exeter,  5  L.  II.  Eq.  63;  Inhabitants  which    he    does    not    consent    to. 

of  Palmyra  vs.  Morton,  25  Mo.  593;  Hibernia    Fire    Eng.    Co.    vs.    The 

'White  vs.  Hrowiicj],  4  .\b.  Pr.  (n.  K.)  Commonw.,    H    Week.    Notes    Cas. 

162,  193.  (Pa.)  320;  id,  April  21,  ISSO,  521; 

*  Per    Inirrahani,    J.,    I{«>rke    vs.  Dunham   vs.   Trustees  of   Uachac  I, 

Ru8.s<ll,  2  Lans    (S.  V.)  K<p.  244.  5  Cow.  462;  People  vs.  Med.  Soc  of 

24S.     And  courts  will  not  l»-  bound  Erie,  24  Marb.  570.     My-laws  nnist 

bv  H  determination  of  an  Exchange  be     reasonable.     Albera    V8.    Mor- 


60 


Stock-brokers  and  Stock  Exchanges. 


the  law  of  the  land,  which,  of  course,  includes  anything  im- 
moral or  against  public  policy  ;  and  that,  with  these  neces- 
sary limitations,  their  rules  will  be  obligatory  upon  each 
member  assenting  thereto.^ 

"  It  follows,  from  the  very  nature  of  such  an  organization," 
says  the  court,  in  White  vs.  Brownell,  "  with  such  objects, 
intents,  and  ])urposes,  that  there  must  be  rules  and  regula- 
tions for  the  gooil  order  of  the  association  ;  and  such  rules 
should  be  held  to  be  conclusive  as  to  the  mode  of  transacting 


chants'  Exchange,  138  Mo.  140; 
American  Live  Stock  Co.  vs.  Chi- 
cago Live  Stock  Exchange,  143  111. 
210.  A  rule  of  the  Chicago  Board  of 
Trade  subjecting  to  expulsion  a 
member  who  shall  knowingly  exe- 
cute an  order  for  firms  or  organiza- 
tions dealing  in  differences,  is  not 
unreasonable  or  against  public  pol- 
icy. Board  of  Trade  vs.  Riordan, 
94  111.  App.  298.  The  principle 
stated  in  the  text  applies  to  all 
voluntary  associations  whether  in- 
corporated or  not.  American  Live 
Stock  Co.  vs.  Chicago  Live  Stock 
Exchange,  143  111.  210,  supra. 

'  White  vs.  Brownell,  4  Ab.  Pr. 
(n.  s.)  162,  193;  Haight  vs.  Dicker- 
man,  18  N.Y.  Supp.  559;  Beltou  vs. 
Hatch,  109  N.  Y.  593;  Weston  vs. 
Ives,  97  X.  Y.  222;  Lewis  vs.  Wil- 
son, 121  X.  Y.  2S4;  People  ex  rel. 
Johnson  vs.  X.  Y.  Produce  Ex- 
change, 149  N.  Y.  401 ;  In  re  Hacb- 
ler  vs.  N.  Y.  Produce  Exchange, 
149  N.  Y.  414;  Goddard  vs.  Mer- 
chants' Exchange,  9  Mo.  App. 
290,  aff'd  78  Mo.  609;  Albers  vs. 
Merchants'  Exchange,  13S  Mo.  App. 
161;  People  ex  rel.  Mcllhany  vs. 
Chicago  Live  Stock  Exchange,  170 
111.  556;  American  Live  Stock  Com- 


mission Co.  vs.  Chicago  Live  Stock 
Exchange,  143  111.  210;  Green  vs. 
Board  of  Trade,  174  111.  585;  Farmer 
vs.  Board  of  Trade,  78  Mo.  App. 
557;  Lehman  vs.  Feld,  97  Fed.  852; 
Com.  Tel.  Co.  vs.  Smith,  47  Hun, 
491,  505;  Hyde  vs.  Woods,  2 
Sawy.  665,  per  Sawyer,  J.;  affirmed, 
94  U.  S.  Rep.  528;  Leech  vs.  Har- 
ris, 2  Brews.  (Pa.)  571 ;  Singerly  vs. 
Johnson,  3  Week.  Notes  Cas.  (Pa.) 
541;  Leech  vs.  Leech,  id.  542,  note; 
Evans  vs.  Wister,  1  Week.  Notes 
Cas.  181 ;  Thompson  vs.  Adams,  7 
id.  281 ;  Ang.  &  Ames  on  Corp.  (10th 
ed.)  §  332,-335;  Moxey's  Appeal,  9 
Week.  Notes  Cas.  441,  afT'g  37  Leg. 
Int.  82;  Hibernia  Fire  Eng.  Co.  vs. 
The  Commonw.,  8  Week.  Notes  Cas. 
320;  id.  April  21,  1880,  521 ;  People 
vs.  Board  of  Trade,  80  111.  134;  but 
see  this  case  questioned  by  the  Su- 
preme Ct.  of  Wisconsin  in  State  ex 
rel.  Cuppel  vs.  Milwaukee  Chamber 
of  Comm.,  47  Wis.  670.  See  also 
Baxter  vs.  Board  of  Trade  of  Chi- 
cago, 83  111.  146;  Sturges  vs.  Board 
of  Trade,  86  111.  441;  Commw.  vs. 
St.  Patrick's  Benev.  Soc,  2  Binii. 
(Pa.)  442;  The  Butchers'  Bene 
ficial  Assoc,  35  Pa.  St.  (11  Casey) 
151. 


Rules  and  Reerulatioiis.  61 

business  between  the  raeinbers,  and  as  to  the  privilege  of 
admission  to  and  continued  enjoyment  of  membership."  ^ 

The  provisions  of  the  constitution  and  by-laws  of  the 
association  are  obligatory  upon  the  members  as  a  contract.^ 
They  express  the  contract  by  which  each  member  has  con- 
sented to  be  bound,  and  measure  his  duties,  rights,  and  obli- 
gations as  such.  Whatever  are  the  rights  acquired  by  a 
member  and  created  by  his  admission  to  membership,  the 
rules  by  which  the  membership  is  created  or  dissolved  and 
which  control  the  affairs  of  the  organization  and  the  rela- 
tions of  members,  entered  into  those  rights  when  created 
and  remained  a  part  of  them.    This  condition  is  self-imposed.^ 

No  person  can  insist  upon  remaining  a  member  and  at 
the  same  time  refuse  compliance  with  its  rules.'' 

But,  in  passing  upon  questions  involving  the  propriety 

•  Per  Van  Vorst,  J.,  White  vs.  vs.  N.  Y.  Produce  Exchange,  58  N. 
Brownell,  3  Ab.  Pr.  (n.  s.)  31S,  326.  Y.  Supp.  842.  When  the  members 
In  Dillard  vs.  Paton,  19  Fed.  Rep.  make  a  contract  subject  to  the 
619,  at  p.  624,  the  court  said:  "It  rules  of  the  Exchange  (in  this  case 
cannot  be  denied  that  merchants  the  Union  Merchants'  Exchange  of 
may  voluntarily  a.ssociate  together,  St.  Louis)  the  rules  become  part  of 
and  prescribe  for  themselves  regu-  the  contract.  Bassctt  vs.  Irons,  8 
lations  to  establish,  define  and  con-  Mo.  App.  127.  liut  not  if  a  rule  of 
trol  the  u-sages  or  customs  that  shall  the  Exchange  (the  Memphis  Cotton 
prevail  in  their  dealings  with  each  Exc.)  is  habitually  violated  by  the 
other.  These  are  useful  institu-  contracting  members.  Dillard  vs. 
lions,  and  the  courts  recognize  their  Paton,  10  Fed.  619.  If  a  rule  of  tho 
value  and  enfone  their  nilcs  when-  Hoard  of  Trade  is  changed  before 
ever  parties  deal  undf-r  them,  in  tln'  completion  of  the  contract,  the 
which  ca.se  the  regulations  become?  latt<'r  is  nevertliele8.s  governed  by 
undoubtedly  a  part  of  Ihe  con-  the  rule  jus  it  existed  when  the  con- 
tract." Sec  20  Am.  L.  Hev.  (1K86),  tract  was  made.  Hess  vs.  Warren, 
p.  17,  where  the  validity  of  by-laws  15  111.  App.  596. 
in  relation  to  option  dealings  is  *  Helton  vs.  Hatch,  109  N.  Y.  593; 
discussed.  Haight   vs.    Dickerman,    IS    N.   Y. 

'  Wertton  vs.  Ives,  97  N.  Y.  222;  Supp.  559. 

In   n-   Ilaebler   vs.    N.   Y.    Produce  *  Lewis   vs.    Wilson,    121     N.    Y. 

Exchange,  149  N.  Y.  414;  HuhhvU  284. 


62  Stock-brokers  and  Stock  Exchauges. 

and  h'gality  of  their  rules,  whei'C  there  is  the  slightest 
property  interest  involveil/  the  courts  will  upply  the  same 
rule  which  is  used  in  the  case  t)f  corporate  bodies. 

In  Leech  vs.  Harris  ^  the  court  saitl  :  "  I  have  very  little 
doubt,  therefore,  that  the  same  rules  of  law  and  equity,  so 
far  as  regards  the  control  of  them,  and  the  adjudication  of 
their  reserved  and  inherent  powers  to  regulate  the  con- 
duct and  to  expel  their  members,  a])ply  to  them  as  to 
corporations  and  joint-stock  companies." 

In  the  case  of  The  People  ex  rel.  Page  vs.  The  Board 
of  Trade  of  Chicago^  the  charter  conferred  upon  the  de- 
fendants the  right  to  admit  or  expel  such  persons  as  they 
might  see  fit,  in  manner  to  be  prescribed  by  the  rules,  reg- 
ulations, or  by-laws  thereof  ;  but  the  court  held  that  this 
language  only  conferred  upon  the  defendants  the  power  to 
admit  or  expel  for  some  just  or  reasonable  cause.  This 
must  now  be  regarded  as  the  settled  law  of  Illinois,  the 
cases  in  that  State  ^  indicating  a  contrary  doctrine,  the 
reasoning  of  which  was  criticized  in  the  first  edition  of  this 
work^  having  been,  after  some  contrariety  of  opinion,  dis- 
tinguished and  in  effect  overruled  in  the  case  of  Pyan  vs. 
Cudahy,*  where  the  court  said  :  "Expressions  may  be  found 

*See,  as  to  distinction  between  111.  85;  Sturges  vs.  Same,  86111.  441; 

unincorporated     associations     pos-  Baxter  vs.  Same,  83  111.  146;  Wright 

scssing  property,   and  those  insti-  vs.  Same,  15  Chic.  L.  News,  230; 

tilted  for  mere  social  enjoyment  or  Pitcher  vs.  Same,  121  111.  412.     See 

benefit,  State  vs.  Ga.  Med.  Soc,  38  also  Ryan  vs.  Lamson,  44  111.  App. 

Ga.  608;  People  vs.  Med.  Soc.  of  204. 

Erie,  24  Barb.  577.     Sec  Board  of  *  pp.  35-38. 

Trade  vs.  Iliordan,  94  111.  App.  298.  '  157  111.  Rep.  108.    See  also  Board 

'2  Brews.  (Pa.)  571-576.  of  Trade  vs.  Nelson,  162  111.  431; 

M5  111.  112.  Green  vs.  Board  of  Trade,  174  111. 

*  People  ex  rel.  Rice  vs.  Board  of  585;  State  ex  rel.  Cuppel  vs.  Mil- 
Trade  of  Chicago,  80  111.  134;  Fisher  waukee  Chamber  of  Commerce,  47 
vs.  Board  of  Trade  of  Chicago,  SO  Wise.  670;  3  N.  W.  713;  21  Alb.  L. 


Rules  aud  Kegulations.  63 

in  the  opinion  of  the  court  (referring  to  People  ex  rel. 
Eice  vs.  Board  of  Trade),'  which  may  bear  the  construction 
that  a  court  would  not  interfere  in  any  case,  "with  the  action 
of  an  organization  like  the  Board  of  Trade,  but  those  expres- 
sions were  not  necessary  to  a  decision  of  the  case,  and  cannot 
be  regarded  as  authorit}^,"  ^  The  court  also  said :  ^  "  Lan- 
guage may  have  been  used  in  some  of  the  cases  cited,  which 
might,  without  a  close  examination  of  the  questions  involved 
in  the  cases,  lead  to  the  conclusion  reached  by  counsel 
(viz.,  that  a  court  of  equity  had  no  jurisdiction  to  interfere 
with  the  action  of  the  board  of  trade).  But  upon  a  care- 
ful consideration  of  the  questions  involved  and  decided  in 
each  case,  it  will  be  found  that  the  question  presented  by 
this  record  did  not  arise  in  those  cases,  and  was  not  before 
the  court."  And  tiic  plaintiff  was  held  entitled  to  an  in- 
junction restraining  the  Board  of  Trade  from  indorsing 
its  certificates  of  deposit  made  by  plaintiff,  to  a  contractor 
of  plaintiffs,  on  the  ground  that  at  a  hearing  before  a  com- 
mittee, appointed  by  defendant,  under  one  of  its  rules, 
plaintiff  was  not  allowed  to  produce  evidence  that  the 
market  value  of  produce  sold  by  him  was  no  higher  on  the 
day  of  delivery  than  when  it  was  sold. 

J.  23;  Albers  vs.  Merchants  Ex.  of  the  non-membership  of  the  com- 
St.  Louis,  39  Mo.  -Vpp.  583.  plainunt,  saying,  however,  "If  tlie 
'HOIU.  13>.  iissociation,  or  a  majority  of  its 
'  1.57  111.  Hep.  at  p.  123.  The  nicinbc-rs,  pa.ss  l)y-Ia\vs  which  are 
court  liad  prcvi<ju.sl}'  indicated  ils  unria.sonaljlc,  or  contrary  to  law  or 
adoption  of  tlic  correct  doctrine  in  public  policy  and  attempt  to  en- 
Live  iStock  ComnuHsion  Co.  vs.  force- them  a.s  a>jain.st  adis-scntinj^or 
Live  .Stock  Exchanjie,  113  III.  210.  controlling;  minority,  such  minority 
(See  post,  p.  (>-l.)  Here  the  objcc-  may  doubtless,  in  proper  ca-scs,  np- 
tion  that  the  rules  were  illegal  wiw  peal  to  the  <'<turt«  for  relief  against 
ur^cd  by  a  non-member  and  the  their  enforcement." 
court  refused  to  interfere,  because  of  '  .\t  p.  123. 


64  Stock-brokers  and  Stock  Exchanges. 

The  general  rule  now  seems  to  be  that  the  courts  will  in 
all  cases  interfere,  by  appropriate  legal  remedy,  to  prevent 
the  expulsion  or  interference  with  a  member^s  rights  in  an 
unincorporated  association  where  the  latter  is  acting  under 
a  by-law,  rule,  or  regulation  which  is  illegal,  unreasonable, 
or  contrary  to  public  policy.^ 

In  the  case  of  Dawkins  vs.  Antrobus,'^  where  the  plaintiff 
sought  to  have  the  court  review  a  resolution  expelling  him 
from  a  club,  James,  L.  J.,  after  referring  to  the  observations 
of  the  Lords  Commissioners  in  another  case^ — to  the  effect 
that  shareholders,  assembled  at  a  meeting  duly  convened, 
were  the  judges  of  what  was  a  reasonable  cause  for  re- 
moving their  directors  ;  and  that  although  the  court  might 
inquire  whether  the  meeting  was  regularly  held,  and  in 
cases  of  fraud,  clearly  proved,  might  interfere  with  the 
acts  done,  still  there  was  no  jurisdiction,  where  no  case  of 
direct  fraud  Avas  proved,  to  determine  whether  the  decision 

'  White  vs.  Brownell,  4  Ab.  Pr.  Supreme  Lodge,  Knights  of  Pyth- 

(n.  s.)    162,193;  People  vs.  Union,  ias,    50    Mo.     App.     45;    Lysaght 

118  N.  Y.  100;  Wachtel  vs.  Society,  vs.  Assn.,  55  Mo.  App.  547;  Albers 

84  N.  Y.  28;  Austin  vs.  Searing,  IG  vs.  Exchange,  138  Mo.  165;  Ellerbe 

N.  Y.  124;  People  vs.  Society,  32  N.  vs.  Faust,  1 19  Mo.  653;    Mulroy  vs. 

Y.  196;  Belton  vs.  Hatch,  109  N.  Y.  Lodge,  28  Mo.  App.  463;  Ludowiski 

593;  Haebler  vs.  Exchange,  149  N.  vs.  Society,  29  Mo.  App.  337;  Am. 

Y.  421;  Lonbat  vs.  Le  Roy,  40  Hun,  L.  Stock  Co.  vs.  Exchange,  143  111. 

549;  Lewis  vs.  Wilson,  121  N.  Y.  210;  Croak  vs.  High  Court,  162  111. 

284;  Fisher  vs.  Keane,  L.  R.  11  Ch.  298;  Board  of  Trade  vs.  Nelson,  162 

Div.  362;  Sperry's  Appeal,  116  Pa.  111.  438;  State  vs.  Williams,  75  N. 

St.  391 ;  Savannah  &c.  Ex.  vs.  State,  C.  135;  Lawson  vs.  Hewell,  118  Cal. 

54  Ga.  668;  Connelly  vs.  Assn.,  58  618;  Karcher  vs.  Lodge,  137  Mass. 

Conn.  552;  Otto  vs.  Union,  75  Cal.  371;  Vaughn  vs.  Hcrndon,01  Tenn. 

314;  Huston  vs.  Ruethingor,  91  Ky.  68;  Farmer  vs.  Board  of  Trade,  78 

333;  Medical  Society  vs.  Weatherly,  Mo.  App.  5.57. 

75  Ala.  252;  Burlington  vs.  White,  '  L.  R.  17  Ch.  Div.  615. 

41  Neb.  547;  Zabriskie  vs.  Railroad,  '  Inderwick  vs.  Snell,  2  Mac.  &  G. 

18    N.    J.    Eq.    183;    Hoeffner    vs.  221. 
Lodge,  41  Mo.  App.  349;  Glardon  vs. 


Rules  and  Regulations.  65 

of  the  meeting  hud,  or  had  not,  been  unduly  influenced  by 
uufoundeil  statements  made  by  pei"Sons  taking  an  active 
part  in  the  proceedings — said  that  he  agreed  with  every 
word  of  these  observations,  Avhich  were  equally  a[)plicable 
to  the  case  of  a  club.  ..."  UnJes^s  it  could  he  said  that  their 
deci-iion  was  so  grossly  unfair  and  unreasonable,  that  it 
could  not  have  been  arrived  at  unless  from  some  malicious 
motives,  this  court  had  no  power  to  interfere."  ^ 

In  State  ex  rel.  Cuppel  vs.  Milwaukee  Chamber  of  Com- 
merce ^  the  visitatorial  power  of  courts  over  corporations  was 
examined.  The  relator  had  been  suspended  from  member- 
ship of  the  defendant  for  refusing  to  pay  a  fine  imposed  by 
its  directoi'S  for  violation  of  one  of  its  rules.  The  rule  in 
question  prohibited  its  members  from  "  gathering  in  any  [)ub- 
lic  place  in  the  vicinity  of  the  Exchange  room,''  and  ''  form- 
ing a  market "  for  the  purpose  of  making  any  trade  or  con- 
tract for  the  future  delivery  of  grain  or  provisions,  before 
the  time  fixed  for  opening  the  Exchange  room  for  general 
trading,  or  after  the  time  fixed  for  closing  the  same,  daily. 
The  charter  authorized  the  corporation  to  make  reasonable 
rules  for  the  regulation  of  its  members.  The  rule  in  ques- 
tion was  held  to  be  reasonable,  and  not  an  unlawful  restraint 
upon  trade,  nor  void  for  uncertainty;  and  the  relator  hav- 
ing been  fairly  tried,  npcju  due  notice,  and  in  accordance 
with  the  rules  of  the  corporation,  and  there  being  abundant 
proof  against  him  tending  to  show  that  he  had  committed 
the  olfence  charged,  it  was  decided  that  he  could  not  bo 
restored  by  mandamus.^ 

'  Soe  also,  in  this  conncrlioii,  L:i-  '  As   to  when  ii  nilc  may  l)c  ro!i- 

liourlnTe   vs.    Kurl   of   WliarmlifTc,  Hoiialjin  or  uiirciLsoiiiil)li'  under  <ir- 

L.  K.  1.3  Ch.  Div.  '.VM'\.  cumHljincrH,  see  (JhiciiKo  va.  Tilton, 

'  17  Wis.  070;  3  .\.    W.  7(iO  (Wot-  S7  III.  .'',17. 
torn  priirinp);  21  Ml.    L.J.  23. 


66  Stock-brokers  and  Stock  Exchanges. 

A  noii-mcmber  may  not  enjoin  the  operation  of  a  by-law, 
or  tlu'  posting  of  a  notice  prohibiting  members  from  doing 
business  for  or  witli  iiini  on  the  ground  that  such  by-law  or 
notice  violated  public  policy,  as  in  restraint  of  trade.' 

If  it  be  admitted  tluit  sucli  by-laws  are  so  far  in  restraint 
of  trade  as  to  be  invalid  for  that  reason,  still  the  position  of 
the  com])lainant  is  in  no  respect  improved.  By-laws  or 
contracts  in  restraint  of  trade  are  illegal  only  in  the  sense 
that  the  law  will  not  enforce  them.  Thev  are  simply  void. 
The  law  does  not  prohibit  the  making  of  contracts  in  re- 
straint of  trade  ;  it  merely  declines,  after  they  have  been 
made,  to  recognize  their  validit}'.^  A  party  to  such  con- 
tract is  not  bound  to  perform  it,  but  he  may  perform  it  if 
he  sees  fit,  ami  his  doing  so  exposes  him  to  no  legal  ani- 
madversion. If  the  by-laws  in  question  are  invalid  because 
of  being  in  imi)ro})er  restraint  of  trade,  they  are  merely 
void,  and  the  members  of  the  Exchange,  being  under  no 
obligation  to  obey  them,  may,  perhaps,  be  entitled,  at  their 
own  instance,  to  protection  against  such  disciplinary  conse- 
quences as  the  Exchange  may  see  fit  to  impose  in  case  of 
disobedience.  But  such  protection  cannot  be  invoked  in 
their  behalf  by  a  stranger,  nor  can  they  be  required  to  dis- 
obey such  rules  except  at  their  own  volition.-^ 

'  American  Live  Stock  Commis-  the  Stock  Exchange  being  the  niles 
sion  Co.  vs.  Chicago  Live  Stork  Ex-  of  a  domestic  forum,  cannot  affect 
change,  143  111.  210;  Russell  vs.  persons  who  are  neither  members, 
New  York  Produce  Exchange,  58  nor  the  clients  of  members.  Thus 
X.  Y.  Supp.  842.  they  cannot  afTect  the  rights  of  the 

'  Mogul  Steamboat  Co.  vs.  Mc-  general  creditors  of  a  defaulting 
Gregor,  L.  R.  2.3  Q.  B.  D.  598.  member.      A  defaulting     member, 

'  In  this  connection  the  following  therefore,  cannot  voluntarily  pay 
quotation  from  Williams'  Forensic  money  to  the  ofScial  assignee  to  be 
Facts  and  Falliries  (Lond.  18S5),  distril^uted  exclusively  amongst 
106,  is  interesting.     "The  rules  of   those  creditors    whose   claims  arise 


Rules  aud  Regulations.  67 

But  the  courts  will  issue  a  writ  of  quo  warranto,  to  in- 
quire into  the  enforcement  of  an  illegal  by-law  of  a  corpo- 
ration. Thus,  in  People  ex  rel.  Mcllhany  vs.  Chicago  Live 
Stock  Exchange/  it  was  said:  ""When  a  corporation  is 
created  there  goes  with  it  the  power  to  enact  by-laws  for  its 
government  and  guidance,  as  well  as  for  the  guidance  and 
government  of  its  members.  .  .  .  But  (such)  by-laws  must 
be  reasonable  and  for  a  corporate  purpose.  .  .  .  They 
must  not  infringe  the  policy  of  the  state  nor  be  hostUe  to 
public  welfare."  Thus,  men  engaged  in  trade  and  com- 
merce may  advertise,  emplo}'^  solicitors,  and  offer  rewards 
and  inducements  to  secui'e  trade  witliout  violating  the  law. 
A  by-law,  therefore,  pr(jliibiting  such  means,  is  unlawful,  as 
hostile  to  public  welfare,  and  in  restraint  of  trade  and  com- 
merce.^ 

And  the  courts,  at  the  instance  of  the  attorney  general, 
will  annul  the  charters  of  incorporated  "  Exchanges  "  organ- 
ized by  dealei*s  in  particular  products,  such  as  coal,  milk 
and  meat,  where  the  purpose  of  the  incorporation,  and  the 
effect  and  intent  of  the  by-laws,  is  to  control  the  prices  of 
such  products.^  Indeed  the  members  of  such  an  "  Exchange  " 
may  be  indicted  and  convicted  of  the  offence  of  criminal 
conspiracy  to  do  an  act  injurious  to  trade  or  commerce.* 

out  of  Stock  Exchange  transactions  Press,    136  X.    Y.  333;    People  ex 

And  if   it   ho  nrjiifl  that  this  is  the  rel.     Pincknej'     vs.      Fire      Tnder- 

rule  of  the  Stork  Exehan^je,  the  an-  writers,    7    Hnii,    24S;   Jackson    vs. 

swer,  as  Lord  Ju.stice  James  said,  is  South  Omaha  Live  Stock  Exdianpe, 

that  the  Stock  Exchange  is  not  an  49  Neb.  0S7 

Alsatiu;  the  Queen's  laws  are  par-  '  People  vs    Milk  Exchange,   Nfi 

amount    there,    and     the  Queen's  N.  Y.  267;  Ford  vs.  Chicago  Milk 

writ  runs  even  into  the  sacred  pre-  Shippers'  A.ssn.,  27  L    R    .\.  20S. 

cincts  of  f'apel  Court."  ♦  I'eoplc  vs.  Sheldon,  139  N.  Y. 

'170  III    -,'.6  2.51. 

'Cf      Matthews     vs.     AHHOciate<l 


68  Stock-brokers  and  Stock  Exchanges. 

And  wluMi  the  constitution  und  by-laws  of  a  corporation 
regulated  the  credit  to  be  allowed  to  members  ;  discrimi- 
nated (in  the  price  to  be  paid  for  produce)  against  non-mem- 
bers ;  controlled  the  delivery  of  goods ;  and  provided  a 
penalty  by  fine  and  suspension  against  offend mg  and  de- 
faulting members,  it  was  lield,  that  such  an  organization 
was  in  restraint  of  trade,  and  a  member  who  was  suspended 
for  violatinfr  such  bv-law  might  maintain  an  action  for 
damages  against  the  corporation  and  its  members  for  the 
subsequent  boycotting  of  his  business.^ 

The  visitorial  or  superintending  power  of  the  State  over 
corporations  created  by  the  Legislature  will  alway  be  exer- 
cised in  proper  cases,  through  the  medium  of  the  courts  of 
the  State,  to  keep  those  corporations  within  the  limits  of 
their  lawful  powers,  and  to  correct  and  punish  abuses  of 
their  franchises.  The  power  extends  to  the  investigation 
of  their  proceedings  for  the  purpose  of  protecting  the  rights 
of  members  against  usurpation  of  the  governing  body  to 
their  prejudice/  To  this  end  the  courts  will  issue  writs  of 
quo  warranto,^  mandamus,'  or  injunction,^  as  the  exigencies 
of  the  particular  case  may  require  ;  will  inquire  into  the 
grievance  complained  of,  and,  if  the  same  is  found  to  exist, 

'  Ertz  vs.  Produce  Exchange,  51  Exchange,    145    N.    Y.    267,     the 

L.  R.  A.  825.  writ  of  quo  warranto  and  proceed- 

'  People  ex  rel.  Johnson  vs.  Pro-  ings  by  information  in  the  nature  of 

duce    Exchange,  149  N.  Y.  401.  quo     warranto     have    been    abol- 

'  Or  permit  the  filing  of  an  in-  ished.     Code  Civ.  Pro.  §  1983.     See 

fonnation    in    the    nature    of    quo  also  Hopkins  vs.  U.  S.,  171  U.  S. 

warranto.     People  ex  rel.  Mcllliany  578;  Anderson  vs.  U.  S.,  id.  604. 
vs.  Chicago  Live  Stock  Exchange,        *  People  ex  rel.  Johnson  vs.  N.  Y. 

170  III.  556.     In  New  York  an  ac-  Produce  Exchange,  149  X.  Y.  401; 

tion  by  the  attorney  general  for  the  In  re  Haebler  vs.  N.  Y    Produce 

annulment  of  the  charter  of  the  cor-  Exchange,  149  N.  Y.  414. 
poration  may  be  maintained.     Code        *  Ryan  vs.  Cudahy,  157  111.  108. 
Civ.   Pro.   §  1798;  People  vs.  Milk 


Rules  and  Resrnlations.  i39 

will  apply  such  remedy  as  the  law  prescribes.  Every  cor- 
]>oratioii  of  the  State,  whether  pubhc  or  private,  civil  or 
municipal,  is  subject  to  this  superintending  control,  although, 
in  its  exercise,  different  i-ules  may  be  applied  to  different 
classes  of  corporations. 

Although,  as  we  have  shown,  a  Stock  Exchange  is  not  a 
corporation,  yet  it  practically  exercises  the  functions  of  one ; 
and  there  seems  to  be  no  good  reason  why  the  courts  should 
not  be  guided  by  the  same  principles,  in  interjireting  their 
by-laws,  as  they  apply  in  the  case  of  corporations,^  keeping 
in  view,  of  course,  the  different  objects  and  ends  ior  which 
the  incorporated  and  non-incorporated  bodies  may  have 
been  instituted.  T<j  confer  upon  an  unincorporated  associ- 
ation an  unlimited  power  to  make  by-laws  would  be  not 

'  Tliis  is  the  view   expressed    in  Loubat  vs.  Le  Roy,  15  .\hb.  N.  C. 

Leech   vs.     Harris,  2   Brews.   (Pa.)  44.     In  White  vs.  Brownell,  how- 

571,     by   Mr.   Justice   Pierce,   who  ever  (4  Ab.  Pr.  [n.  s.]  1G2),  the  court 

said:    "I    have  very    little    doubt,  said:  ".4  member  of  a  bodi/  of  this 

therefore,  that  the  rules  of  law  and  description  (a  Stock  Exchanp;e)  has, 

equity,  so  far  as  regards  the  control  as  such,  undouhtedhi  rights  which  the 

of  thoni,   and  the  adjudication   of  law  ivill  protect;  but  they  do  not  rest 

their  reserved  and  inherent  powers  upon  the  same  {rround,  and  are  by 

to  reffulate  the  conduct  and  to  expel  no  means  coextensive  witli  the  fran- 

the  meml)ers,  apply  to  them  as  to  chi.se  enjoyed  bj' a  mcmljcr  of  a  cor- 

corporations  and   joint-stock   com-  poration.     Tliey  depend  \ipon  the 

panics."     See  also  Otto  vs.  Journey-  nature  of  the  orj^anization,  upon  the 

men  Tailors'  Protective  Union,  75  oljject  for  which  it  was  formed,  and 

Cal.  308;  American  Live  Stock  Co.  upon  the  niles,  reRulations,  consti- 

V9.  Chicago  Live  Stock  ExchaiiRe,  tution,   or  by-laws   wliich   are   ex- 

143  III.    210;    Watcrbury  vs.  Mer.  planatorv  of  its  purpose,  and  which 

Union  Exp. Co.,  50  Harl).  100;  Sand-  the  body  has  adopted  for  its  gov- 

ford  vs.  Sup«T\i.sorH  of  .New  York,  ernment."      But  tlic  Icarnetl  judge 

15  Mow.  Pr.  iN.  Y.)  172;  Peoi)l(' ex  wlio  ticHvcred  the  opniioii  in  that 

nl.   Plait  VH.  Wcrnjjle,    117   X.    Y.  C!i.s«'    expressly    admittc<l    that    the 

13A;  rf.   P«-oi)lr-  ex   nl.   WinchcKter  rules    of    these    vohnitary    associa- 

vs,  Colf-man,   133   N.   Y.  2S1.     See  t\i>\\n  muni,  huvo  " nothing  in  thciu  in 

not^*  on  judicial  int«Tpo.Hition  in  the  conflict  with  the  law  of  the  lanj." 
iifTair.'t  of  a,  voluntarv   association. 


70  Stock-brokers  uiul  Stock  Kxcliiiiiges. 

only  to  I'iiiso  it  above  corporaticjns  which  are  supposed  to 
have  special  franchises,  but  to  endow  it  with  legislative 
authority.' 

The  courts  will  never  be  bound  by  a  determination  of  an 
Exchange,  ultra  its  rules  or  by  a  determination  in  accord- 
ance with  rules,  which  conflict  with  established  principles 
of  law.- 

The  utmost  that  these  associations  can  claim,  therefore, 
is  the  power  to  make  rules  and  regulations  for  their  internal 
government,  which  the  courts  will  not  pronounce  oppressive 
or  unreasonable ;  and,  when  their  rules  are  bi'ouglit  into  a 
court  of  justice,  for  construction,  they  must  also  submit  to 
the  test  which  is  applied  to  the  by-laws  of  incorporated 
bodies,  and  submit  to  have  them  declared  as  void,  when 
they  violate  the  Constitution  or  laws  of  the  United  States, 
or  of  the  individual  States  where  the  associations  exist,  or 
the  common  law  as  it  is  generally  accepted.'^ 

And  in  the  exercise  of  any  reserved  or  inherent  power  to 


'  See  Ang.  &  Ames  on  Corp.  (11th  member's  seat  could  be  made,  other 

ed.)  §  591,  note  5;  Lindley  on  Part,  than  that  which  was  provided  by 

(4th  ed.)  5.     See  also  ed.  of  1893.  the  rules  and  to  which  he  has  as- 

In  People  ex  rel.  Piatt  vs.  Wemple,  sented. 

117  N.  Y.  at  p.  144,  it  is  pointed  out  ^  Ang.  &  Ames  on  Corp.  (11th 
(with  numerous  citations)  that  such  ed.)  §  332.  But  a  by-law  estab- 
associations,  when  formed  without  lishing  a  rule  of  contract  differing 
authoritj'  of  parliament,  were  de-  from  the  conunon-hiw  rule  is  not 
clared  in  England  to  be  illegal  and  void,  unless  some  principle  or  policy 
void  and  to  be  deemed  a  public  of  the  common  law  is  violated, 
nuisance  (6  Geo.  I.  chap.  18,  §  18),  Goddard  vs.  Merchants  Exchange, 
the  statute  m  this  respect,  it  is  said,  9  Mo.  App.  290,  aff'd  on  opinion 
following  the  common  law,  and  en-  below,  78  Mo.  609.  .V  rule  requir- 
forcing  its  rules  by  the  imposition  of  ing  compulsory'  submission  of  prop- 
penalties,  erty    rights    is    illegal.     Bank     of 

nVcston  vs.  Ives,  97  X.Y.  222,  Montreal  vs.  Wonte,  105  111.  App. 

whore  it  wa.s  held  that    no  appro-  373 ;    Alton    Co.    vs.    Norton,    id. 

priation  of  the  proceeds  of  a  sale  of  a  385. 


Rules  and  Rei;ulatioiis.  71 

amend,  alter,  or  repeal  the  by-laws  they  will  be  governed 
by  the  same  general  principles. 

This  is  so  with  corporations.  Xo  private  corporation 
may  repeal  a  by-Uiw  so  as  to  impair  rights  which  have  been 
given  and  are  vested  thereby.^  Nor  so  as  to  destroy  the 
contract  rights  of  the  members.-  Subject  to  these  limita- 
tions, the  power  to  amend  a  by-law  is  inherent.^  In  the 
interpretation  of  b\'-laws  the  words  are  given  their  ordinary 
and  popular  meaning,  nil  loquitur  valgus,  being  made  and 
enforced  by  men  unlearned  in  the  law.* 

And  the  strict  rules  of  criminal  pleadings  are  not  appli- 
cable to  the  proceedings  of  a  Board  of  Trade  for  expulsion 
of  a  member  for  violation  of  one  of  its  by-laws.^ 

By-laws  must  possess  reasonable  certainty  in  terms.® 

'  Kent  vs.  Quicksilver  Mining  Co.,  'People  ex  rel.  Johnson  vs.  N. 

78  N.  Y.  159.  Y.  Produce  E.xchange,   149  N.  Y. 

'Weston  vs.  Ives,  97  N.  Y.  222;  401. 

Parish  vs.  X.  Y.  Produce  Exchange,  The  following  is  an  apt  and  amus- 

169    N.    Y.    34.     As    to    when    an  ing  case  illustrative  of  the  rule  that 

amendment   of   a   by-law   as   to   a  an  association  cannot  pass  any  rule 

gratuity  fund  does  not  impair  the  or  b^'-law  which  is  in  violation  of  the 

contract    right,    .see    McDowell    vs.  principles  of  law.     It  was  an  indict- 

Aekley,  93  Pa.  St.  277.     See  also  men t  for  a.s.sault  and  battery,  the  de- 

Greer  vs.  Stoller,    77  Fed.   Rep.  1.  fendants  justifying  under  a  rule  of 

'  Parish    vs.  X.  Y.   Produce  E.\-  a  voluntary  unincorporated  .society. 

change,  169  X.  Y.  34.     The  adop-  The  defendants  and  the  prosecutrix 

tion,  by  an  unincorporated  society,  were  mem!)ers  of  a  Ijcnevolent  soci- 

of  a  new  constitution  is  illegal,  and  cty  known  as  the  "Good  Sanuiri- 

of  no  force  when;  it  ha.s  not  been  tans,"    which    society    had    certain 

carried  in  accordance  with  xXw  pro-  rules  and  ceremonies  known  lus  the 

vi.sions  of  the  exi.sting  <on.stitution  ceremonies  of  initiation  and  expul- 

of  thcsocirrty.    Hociireiter's  .\pp.,  8  sion.     The  prosecutrix  having  been 

Week.  .Not«j  Ca.s.  461.  remiss  in  some  of  her  obligations, 

♦  .Nelson  vs.   lioard  of  Trade,  .08  and,  when  called  upon  to  explain. 

III.  .\pp.  .399,  rev'd  on  other  proundH  having  become  violent,  the  dcfeiid- 

162  111.  431.  unt,   with  others,  proceeded  to  pcr- 

'  Ikjard  of  Trade  vh.  Xelaon,  162  form   the   ceremony    of   expulHion, 

^"-  '••'•  which  consisted  in  suspending  her 


72  Stook-brokors  and  Slock  Excliaiii^cs. 

AVheii  ;i  CoiniiuM'cial  l^xcliangc  is  empowd'cd  by  its  cluir- 
ter  to  regulate  its  int'iiil)ersiii  the  conduct  of  tlicir  business, 
a  rul(>  that  nuMnbcrs  who  were  warehousemen  shouhl  execute 
a  bond  to  secure  tosliipjiers  or  iiienibers  the  pi'oeceds  of  the 
sales  of  their  property  is  valid,  and  such  a  bond  is  binding.^ 

(/>)  Power  of  Suspension  and  Expulsion. 

One  of  the  most  important  functions  of  an  association  or 
comj)any,  whether  incorpoi'ated  or  unincorporated,  is  the 
power  of  suspension  and  expulsion  from  membership.  As 
several  of  the  Stock  and  Produce  Exchanges  in  the  United 
States  have  become  incorporated,  whilst  others,  like  the 
Xew  York  Stock  Exchange,  remain  unincorporated  bodies, 
it  is  desirable  to  ])f)int  out  the  distinction  which  exists  be- 
tween rights  in  a  corporation  and  rights  in  an  unincorpo- 
rated association.  In  the  former  case,  the  member  is  in  the 
enjoyment  of  unfranchise,  the  right  to  wdiich  is  not  derived 
from  the  body,  but  is  created  by  statute,  or  exists  by  pre- 
scripti<jn,  and  cannot  be  taken  awn}'  by  the  act  of  the  cor- 
poration, except  authorized  by  its  charter,  or  for  the  three 

from  the  wall  by  means  of  a  cord  batterj',  had  the  parties  concerned 

fastened   around  her  waist.  not  been  members  of  the  "Society 

This  ceremony  had  been  inflicted  of  Good  Samaritans,"  it  is  not  the 

upon    others,    theretofore,    in    the  loss  a  battery  because  they  were  all 

presence   of  the   prosecutrix.     She  members  of  that  humane  institu- 

resisted  to  the  extent  of  her  ability,  tion.     The     punishment     inflicted 

The  court,  on  appeal,  held:  upon  the  person  of  the  prosecutrix 

"When  the  pro.secutrix  refused  to  was  wilful,  violent,  and  against  her 

submit  to  the  ceremony  of  e.xpul-  consent,  and  thus  contained  all  the 

sion  established  by  this  benevolent  elements  of  a  wanton  breach  of  the 

Society,  it  could  not  be  lawfully  in-  peace."     State  a's.  Williams,  75  N. 

flicted.     Rules  of  discipline  for  this  C.  134. 

and  all  voluntary-  associations  must  '  Warren  vs.  Louisville  Exchange, 

conform  to  the  laws.     If  the  act  of  55  S.  W.  (Ky.)  912. 
tying  this  woman  would  have  been  a 


Suspension  and  Expulsion.  73 

causes  mentioned  siqyra  (pp.  74  and  75).  But  in  the  latter 
case  the  member  Las  no  rights  of  a  liiglier  dignity  than  those 
springing  out  of  a  vohmtary  contract  between  himself  and 
his  fellow  members.  Such  contracts  are  upheld  when  they 
are  not  unreasonable  or  contrary  to  law  or  public  polic}", 
and  the  member  may  thereby  voluntarily  subject  himself  to 
summary  expulsion  for  causes  and  in  modes  which  would 
not  be  justified  in  the  case  of  a  chartered  corporation.^ 

It  seems  to  be  reasonably  well  settled  that,  as  unincorpo- 
rated societies  have  the  right  to  prescribe  rules  for  the  con- 
duct of  their  business,  the}^  have  the  correlative  power  to 
enforce  them  ;  and  that  for  a  violation  of  such  rules,  after  a 
hearing  in  accordance  with  the  methods  prescribed  in  the 
constitution  or  rules,  any  offending  member  may  be  either 
suspended  or  expelled  from  membership,  as  the  nature  of 
act  justifies.^ 

'  Thompson's    Commentaries    on  seems  undoubted.     Angell  &  Ames 

Corporations,  §  846,  and  cases  cited  on   Corp.    §§410,    411,    and    cases 

in  footnotes.     Some  of  the  author-  cited. 

ities  seem  to  hold  that  in  the  case  of  For  cases  arisinc;  between  corpo- 

moneycd    corporations    a    member  rations  and  their  members  as  to  the 

cannot  be  expelled  unless  the  right  power  to  suspend  or  expel,  sec  Ang. 

has  been  conferred  by  statute,  even  &  Ames  on  Corps.  (11th  ed.)  §  408 

for  the  three  causes  mentioned  in  et  secj.;  Potter  on  Corps.       §  721; 

the  text.   Angell  &  A.  on  Corp.  (11th  Morawctz  on  Corp.  (2d  ed.)  §§  277, 

ed.)     410;    Thomp.son's    Com.     on  49.3;    Beach    on    Corp.  §§  97,    595; 

Corp.  §  840,  and  cases  cited  in  note  Speeling    on    Corp.    §  523    ct   seq.; 

1.     But  the  soundness  of  this  doc-  Thompson  on  C'orp.   §  799  et  seq.; 

trine  may  be  questioned,  JLS  a  mem-  Cook    on    Corporations     (4th  ed.), 

ber  might,  by  continuous  violation  §§  11,  504,  710;  .\mcrican  &  Eng- 

of  his  duty  :ls  an  incorporator,  en-  li.sh    Kncy.    of    Law    (2d    ed.),    tits, 

sure  the  destruction  of  tlir- corpora-  "Amotion"      and      "  Disfranchi.se- 

tion,  and  the  latter  bf  powerless  to  m(>nt." 

prevent  its  enforced  dissoluti()n  l>y  '  Leech  vs.  Harris,  2  Brews.  (Pa.) 

his  pxpul.sif)n.     But  tluit  he  would  571;  Wliite  vs.  I^rownell,  4  .'\b.  Pr. 

be  entitled   tf)  the   amount  of  his  (n.  s.)  102,  afT'g  3  id.  31H;  Belton  vs. 

stork   and   could   n-cover   it   in   an  Hatch,   100   N.   Y.   593;   Lewis  vs. 

action      against     the     corporation  Wil.son,    121    X.    Y.   2<S4;    Kuehne- 


74  Stock-brokers  and  Stock  Exchanges. 

And  unincorporuleil  bodies  have  not  only  the  right  to 
cx|)fl  a  nieiiiljer  lor  a  violation  of  their  express  rules,  where 
such  a  penalty  is  attached  to  the  act,  but  such  associations 
equally  with  corporations  have  the  inherent  power  to  expel 
their  members,  in  the  following  cases,  for  certain  acts, 
although  they  may  not  be  specifically  mentioned  in  their 
by-laws  : 

1.  When  an  offence  is  committed,  which  has  no  immediate 
relation  to  a  member's  corporate  duty,  but  is  of  so  infamous 
a  nature  as  to  render  him  unfit  for  the  society  of  honest  men. 
Such  as  the  offences  of  perjury,  forgery,  etc.  But  before  an 
expulsion  is  made  for  a  cause  of  this  kind,  it  is  necessary 
that  there  should  be  a  previous  conviction  by  a  jury  accord- 
ing to  the  law  of  the  land. 

2.  When  the  offence  is  against  his  duty  as  a  corporator ; 
and,  ill  that  case,  he  may  be  expelled,  on  trial  and  conviction, 
by  the  corporation. 

3.  When  the  offence  is  of  a  mixed  nature,  against  the 
member's  duty  as  a  corporator,  and  also  indictable  by  the 
law  of  the  land.' 

Upon  this  question  of  disfranchisement  there  is  a  "well- 
defined  distinction  between  those  bodies,  corporated  or  un- 
incorporated, where  the  members  exercise  a  personal  and 
active  supervision  or  duty,  and  in  those  commercial  organ- 

raundt  vs.  Smith,  2  N.  Y.  Supp.  ^  Leech  vs.  Harris,  2  Brews.  (Pa.) 

625.     In  CaUfornia  it  has  been  held  571;  People  ex  rel.  Thacher  vs.  N. 

that  a  member  may  be  also  expelled  Y.  Commercial  Assn.,  18  Abb.  Pr. 

for   conduct   clearly   violating  the  271.     Expulsion     is     justified     by 

fundamental  objects  of  the  associa-  ficuilt  of  any  act,  which  though  not 

tion.     Otto  vs.  Tailor's  Union,  75  expressly    prohibited    by    the   by- 

Cal.  308.     When  by  the  rules  the  laws,  yet  violates   the  fundamental 

offense  is  punishable  by  fine  only,  objects  of  the  association.     Otto  vs. 

the   association   cannot   expel   the  Tailors'  Union,  75  Cal.  308. 
member.     Id. 


Suspensiou  and  Expulsion.  75 

izations  instituted  mainly  for  gain,  where  the  members  do 
not  actively  participate  in  the  management,  but  merely 
hold  certiticates  of  stock,  which  are  transferable  by  assign- 
ment and  delivery,  and  which  entitle  each  holder  to  a 
proportionate  share  of  the  assets,  profits,  and  earnings  of 
the  company.  In  the  former  class  the  personal  character 
and  conduct  of  the  member  may  be  of  great  importance, 
and  the  rules  stated  above,  respecting  the  power  of  expul- 
sion, will  rigidly  apply  ;  but  in  the  latter  class  the  personal 
character  of  the  stockholder  is  of  no  particular  concern ; 
and,  consequently,  it  seems  to  be  settled,  both  by  reason 
and  precedent,  that,  generally,  a  member  cannot  be  dis- 
franchised, and  deprived  of  his  rights  in  the  corporate 
property,  for  acts  of  misconduct  disconnected  with  the  cor- 
porate business.^ 

The  rule  that  seems  to  be  applied  to  all  cases  is  that  when  a 
member  disqualifies  himself  from  assisting  in  promoting  the 
object  and  purpose  of  the  corporation,  he  forfeits  his  corpo- 
rate franchise,  and  may  thus  justify  a  vote  of  expulsion  ;  but 
even  then,  it  seems,  in  a  commercial  joint-stock  company, 
the  member  would  be  entitled  to  th.e  amount  of  his  stock, 
and  could  recover  it  in  an  action  against  the  corporation.* 

"With  this  statement  of  the  general  rule,  reference  will  now 
specially  be  made  to  the  cases  which  have  arisen  between 
Stock  and  Produce  Exchanges  and  their  members  relating 
to  the  power  of  expulsion  ;  and,  as  the  subject  is  compara- 
tively a  new  one,  we  deem  it  better  to  set  them  out  fully, 

'  .\nK.   <fc    Ames   on   Corp.    (lllh  luw  in  27  AllKiny  L.  J.  :V_'(»;  urticlc 

ed.)   §  410;  White  vs.   Browneli,  4  on    conclu.sivcnc.s.s    of   dfcisions    of 

Ab.  Pr.  (n.  h.)   162-109.     See  also  irihuiiulH  of  luwocijilions  or  rorporii- 

Ix)uhat  V8.  Lc  Key,  1.5  AI>Ij.  N.  (.'.  tions,  4'.)  L.    It.  A.    3r,3;    Noukirch 

1,    and    valuable    note    apjK-nded  vh.  Kep|)I(T,  (it;  \.  E.  (.\.  Y.)  1 112. 

thereto  at  p.  44,  and  artidf;  <jn  rlulj  '  .\n«.  A  .Xnir.s,  §§  110,   111. 


T»)  Stock-brokers  ami  Stock  Exchiinges. 

that    Llic    views   uf    the  court   iiiuy  be  thoroughly  appre- 
ciated. 

In  the  case  of  "White  vs.  Brownell '  a  claim  and  matter  of 
difference  arose  between  the  plaintilF,  a  member  of  the  Open 
Board  of  Brokers,  an  unincorporated  association,  and  C.  M. 
&  Co.,  also  members,  growiiii^-  out  of  their  rights  and  ob- 
ligations under  a  contract  for  the  purchase  of  certain  rail- 
road stock,  agreed  to  be  sold  and  delivered  by  plaintiff  to 
saiil  C.  M.  &  Co.  The  contract  Avas  made  at  the  board, 
and  as  members  thereof.  A  dispute  subsequently  arose, 
and,  after  notice  to  plaintiff,  C.  M.  Sz.  Co.  purchased  a  cer- 
tain amount  of  the  stock  under  the  rules,  but  plaintiff  re- 
fused to  recognize  the  transaction  or  pay  for  the  stock ;  and, 
in  consequence  thereof,  C.  M.  &  Co.  made  a  claim  against 
him  for  a  large  sum  of  money,  being  the  amount  of  the 
difference  in  their  favor.  C.  M.  ife  Co.  subsequently  pre- 
sented their  claim  to  the  Arbitration  Committee,  which, 
under  the  constitution  of  the  board,  had  cognizance  of  all 
claims  and  matters  of  difference  between  members  of  the 
board,  and  its  decision  was  declared  binding.  Under  the 
constitution,  an  ap))eal  would  lie  from  the  Arbitration 
Committee  to  the  Board  of  Appeals.  It  was  also  provided 
in  the  by-laws  that,  as  a  means  of  mutual  protection,  it 
should  be  the  duty  of  an}'-  member  to  report  to  the  board 
all  cases  of  defalcation  of  contracts  of  other  members,  and 
all  cases  of  refusal  or  inability  to  pay  differences,  where- 
upon the  president  should  declare  the  member  so  reported 
suspended.  From  such  suspension  the  reported  member 
might  appeal,  and  demand  a  hearing  before  the  Executive 
Committee.     After  the  claim  of  C.  M.  &  Co.  had  been  pre- 

>  3  Ab.  Pr.  (n.  s.)  318. 


Suspeusiou  aud  Expulsion.  77 

sented  to  the  Arbitrutiou  Committee,  a  day  for  hearing  was 
appointed,  and  plaintiff  duly  summoned  to  a})pear  and  an- 
swer. The  plaintiff  declined  to  appear  before  the  committee, 
whereupon  the  latter  heard  and  determined  the  matter  upon 
the  statements  of  C.  M.  ct  Co.,  and  rendered  judgment  to  the 
Board  of  Appeals ;  and,  after  the  time  for  appeal  had 
elapsed,  C.  M.  &  Co.  brought  the  matter  to  the  notice  of 
the  Committee  on  Membersliip,  Avhich,  after  investigation, 
reported  to  the  board  that  plaintiff  was  in  default  under 
his  contract,  whereupon  the  president,  in  accordance  with 
his  duty,  declared  the  plaintiff  suspended.  The  plaintiff 
thereupon  appealed  to  the  Executive  Committee ;  but  be- 
fore that  body  had  convened  he  brought  an  action  praying 
that  the  president  and  board  should  be  restrained  and  en- 
joined from  interfering  with  him  in  the  full  exercise  of  his 
rights,  etc.,  as  a  member  of  the  board,  alleging  that  the 
action  of  the  respective  committees  was  unjust,  and  insist- 
ing that  his  original  contract  with  C.  M.  ife  Co.  was  still 
in  force.  The  court  refused  to  give  the  ])laintiff  any  relief, 
and  dissolved  the  preliminary  injunction  which  had  been 
granted,  on  the  ground  that,  as  all  the  proceedings  had 
been  conducted  in  accordance  with  the  by-laws,  which 
plaintiff  had  submitted  to  upon  becoming  a  member,  a  court 
would  not  interfere  where  there  was  no  claim  that  the  terms 
of  the  constitution  were  hard  and  unc(jnscionaljle.  The  court 
said  :  "  The  very  existence  of  this  body  depends  upon  the 
faithful  observance  of  its  organic  law  by  all  its  members. 
The  court  must  regard  the  constituticjn  and  laws  of  this 
board  as  the  contract  by  which  all  the  menibn-s  are  bound. 
The  court  caimot  mak(iany  othercontract  lor  the  parties  than 
they  havesolemrdy  mad<!  for  themselves.  It  is  not  tlu^  prov- 
ince of  courts  of  law  to  make  contracts  for  parties.     It  may 


78  Stock-brokers  aud  Stock  Exchanges. 

explain,  interpret,  enforce,  and  in  some  instances,  where  con- 
tracts are  hard  and  unconscionable,  relieve  from  them.  But 
there  is  no  claim  in  this  suit  that  the  terms  of  this  constitu- 
tion adoplcel  by  the  plaintiff  are  hard  and  unconscionable. 
The  plaintiff  does  not  ask  to  be  relieved  from  his  member- 
ship, he  rather  demands  that  he  may  bo  allowed  to  remain 
in  the  association,  under  the  constitution  ;  he  docs  not  wish 
to  be  suspended,  or  have  his  connection  determined  and 
ended.  In  an  organization  of  the  character  of  the  Open 
Board  of  Brokers,  with  its  several  hundred  members,  the 
business  transacted  at  its  rooms  being  daily  large  in  amount, 
and  the  stocks  and  securities  dealt  in  being  ever  fluctuating 
in  value,  it  Avas  not  unreasonable  to  apprehend  that  there 
would  be  constantly  occurring  differences  between  members 
acting  as  agents  for  others,  in  regard  to  the  terms  of  con- 
tracts and  as  to  the  obligations  and  duties  of  contracting 
parties,  under  agreements  often  hastily  made.  The  temp- 
tation to  avoid  a  contract  in  a  rapidly  rising  or  falling  mar- 
ket,  as  the  pecuniary  interest  of  a  party  might  prompt,  ren- 
dered it  imperative  that  some  tribunal  in  the  body  of  the 
association  should  be  appointed,  and  agreed  upon,  to  take 
cognizance  of,  and  exercise  jurisdiction  over,  all  claims  and 
matters  of  difference  which  might  arise  between  members 
of  the  board.  This  appears  the  more  important,  as  confi- 
dence in  each  other  and  in  the  engagements  which  they 
might  make  one  with  the  other,  and  in  the  fairness,  openness, 
and  uprightness  of  their  transactions,  and  in  the  certainty 
that  their  engagements  would  be  fulfilled,  are  announced  as 
the  causes  which  led  to  the  organization.  To  be  effective, 
their  decisions  should  be  prompt.  As  these  engagements 
would  be  constantly  maturing,  it  was  eminently  proper  that  a 
tribunal  should  be  near  to  render  speedy  and  exact  justice. 


Snspeusiou  <ind  Expulsion.  79 

Confidence  in  the  real  life  of  such  engagements ; hence  the  ap- 
pointment of  a  Committee  of  Arbitration  is  a  prominent 
feature  in  the  constitution  of  this  board  ;  and,  by  the  express 
assent  of  each  member,  jurisdiction  is  awarded  to  this  com- 
mittee in  advance  of  all  claims  and  matters  of  difference 
■which  might  arise  between  the  members.  .  .  .  The  plaintiff 
agreed,  when  he  became  a  member,  that  the  Arbitration 
Committee  should  take  notice  of  all  claims  and  differences 
between  members,  and  that  he  would  be  bound  b}'  its  de- 
cision. He  refused  either  to  acknowledge  its  conclusive 
force  in  a  case  in  which  he  was  interested,  or  to  appeal  from 
its  decision.  The  constitution  must  be  taken  as  a  whole. 
The  contracting  part  is  an  entirety.  All  its  obligations  are 
to  be  assumed  and  discharged  ;  all  its  benefits  are  to  be  en- 
joyed. The  enjoyment  of  the  latter  depends  upon  the  per- 
formance of  the  former.  AYere  it  otherwise,  the  association 
would  be  of  no  real  advantage  to  its  members.  It  clearly 
appears  that  good  faith  in  the  observance  of  the  constitu- 
tional obligations  of  the  members  was  intended  to  furnish 
a  test  for  the  right  of  continued  membership." 

"  There  was  some  tliscussion  on  the  argument  of  this  mo- 
tion as  to  the  right  of  the  plaintiff  to  revoke  his  consent  to 
th<.'  jurisdiction  of  the  Arbitration  Committee  over  the  claim 
and  difference  in  question.  In  an  action  in  a  court  of  law  to 
enforce  the  award,  such  (juostion  might  be  raised.  For  the 
purposes  of  this  action,  under  the  facts  of  the  case,  it  can 
give  him  no  relief.  If  the  plaintiff  would  revoke  the  part 
of  his  agreement  with  his  associates,  which  imposes  duties 
and  obligations  upon  him,  he  cannot  insist,  in  a  court  of 
equity,  that  hesiiall  be  jjrotcctcd  in  tlu-: enjoyment  of  rights 
and  privileges  created  by  the  same;  contracts.  He  that 
would  have  equity  must  do  equity." 


80  Stock-brokers  iiiul  Stock  Exchanges. 

This  cause  was  subseciuently  appealed,'  and  the  judgment 
of  the  lower  courts  was  allirmed.  It  will  be  observed  that  in 
neither  of  the  two  elaborate  opinions  delivered  in  the  cause 
did  the  court  consider  the  legal  aspect  of  the  issue  between 
the  plaintiff  and  M.  C.  &  Co.,  but  the  same  was  deliberately 
avoided,  it  being  held  that,  under  any  circumstances,  the 
plaintiff  was  lirst  bound  to  exhaust  his  remedy — an  appeal  to 
the  executive  committee,  in  the  manner  pointed  out  in  the 
constitution  and  by-laws  of  the  board — before  any  resort  to 
the  courts  could  be  had. 

But  it  seems  that  where  an  unincorporated  association, 
through  a  committee  or  otherwise,  seeks  to  suspend  or  expel 
a  member  for  acts  not  provided  for  in  the  constitution  or  by- 
laws, or  by  an  ex  jjo.st  facto  VQ'&oXnXAon^  the  courts  will  inter- 
fere by  injunction  to  j)revent  the  same.^ 

The  case  of  Sewell  vs.  Ives,  President,  etc..  New  York  Stock 
Exchange^  is  an  interesting  case,  illustrating  this  question  of 
the  right  of  suspension  and  expulsion.     The  plaintiff  was  a 

*  4  Ab.  Pr.  (n.  s.)  162;  s.  c,  2  obtaining  by  the  relator  of  goods 
Daly,  318.  under  false  pretences  was  a  breach 

^  Per  Ingraham,  J.,  Rorke  vs.  of  his  duty  to  the  association.  Id. 
Russell,  2  Lans.  (X.  Y.)  244,  248.  But  a  member  of  the  New  York 
As  to  the  power  of  an  uniucorpo-  Cotton  Exchange  (incorporated) 
rated  association  to  suspend  or  ex-  cannot  be  expelled  for  contesting 
pel  a  member,  where  there  is  no  his  title  to  a  seat,  there  being  no 
specific  pro\'ision  in  the  const itu-  provision  in  the  charter  or  by- 
tion  or  by-laws  to  that  effect,  see  laws  relative  thereto.  People  ex 
Leech  vs.  Harri.s,  2  Brews.  571 .  If  a  rel.  Elliott  vs.  New  York  Cotton 
member  of  an  incorporated  asso-  Exchange,  8  Hun,  216.  The  pre- 
ciation  directly  violates  its  charter  sumption  should  be  against  the 
or  by-laws,  he  may  be  expelled,  power  to  expel  except  for  the  causes 
People  ex  rel.  Thacher  vs.  N.  Y.  recognized  by  the  adjudged  cases, 
Commercial  Assn.,  18  Abb.  Pr.  271.  citing  A\'Tiite  vs.  Brownell,  supra. 
In  that  case  the  corporation  was   Id. 

organized  (inter  alia)  "to  inculcate  'X.  Y.  Supreme  Ct.,  Sp.  T.,  re- 
just  and  equitable  principles  of  ported  in  X^.  Y.  Daily  Reg.  Feb.  11, 
trade"  and  it  was  held  that  the    1879. 


Suspension  and  Expulsion.  81 

member  of  the  firm  of  J.  B.  &  Co.,  which  failed.  An  investi- 
gatioQ  of  the  affairs  of  the  firm  showed  that  it  had  re-hypoth- 
ecated securities  upon  which  it  had  loaned  money  to  Brokers ; 
and  the  members  of  the  firm,  consisting  of  B.  and  the  plain- 
tiff, were  arraigned  before  a  sub-committee  of  the  Governing 
Committee  of  the  Stock  Exchange,  which  reported  in  favor 
of  their  expulsion,  on  the  ground  that  they  had  been  guilty 
of  obvious  f  i-aud  under  Article  XX.  (now  Art.  XVII.,  sec.  2, 
in  amended  form)  of  the  Constitution  of  the  Exchange,  as 
follows:  "  Should  anv  member  be  guilty  of  obvious  fraud,  of 
which  the  Governing  Committee  shall  be  the  judge,  he  shall, 
upon  conviction  thereof,  by  a  vote  of  two  thirds  of  the  mem- 
bers of  the  said  committee  present,  be  expelled,  and  his 
membership  shall  escheat  to  the  Exchange ;  subject,  however, 
to  the  provisions  of  Article  XIV.  of  the  constitution  as  re- 
gard the  claims  of  members  of  the  Exchange  Avho  are  cred- 
itors of  such  persons." 

The  resolution  of  expulsion  was  approved  of  by  the  Govern- 
ing Committee.  There  was  a  unanimous  vote  on  B.'s  guilt ; 
but  only  a  majority  suKscribed  to  the  finding  in  plaintiff's 
case,  though  there  was  a  two-third  vote  in  favor  of  the  lat- 
ter's  expulsion. 

The  plaintitf  applied  for  an  interlocutory  injunction,  re- 
straining the  presidt'iit  and  other  officers  of  the  Exchange 
from  interfering  with  his  entering  the  Exchange  and  carrving 
on  bu.siness  there,  alleging  that  his  expulsion  was  unjust,  and 
that  it  deprived  him  of  iiis  interest  in  the  property  of  the 
Exchange  and  all  of  the  rights  and  incidenis  pertaining  to  a 
membership  therein.  The  Court  iield  that,  although  the 
plaintiff's  expulsion  had  been  technically  irrew'nlar,  vet,  as  it 
was  an  admitted  fact  that  the  linn  of  which  he  was  a  mem- 
ber was  insolvent,  he  c(juld  not  justly  complain  of  beiiiir  sus- 


82 


Stock-brokers  and  Stock  Exchanges. 


pended  from  membership;  as  under  Article  XIV.  (now  ar- 
ticle XVI.)  of  the  Constitution  of  the  Stock  Exchange,  all 
members  becoming  insolvent  shall  be  suspended  until  they 
have  settled  with  their  creditors.' 

This  decision  may  be  open  to  question,  upon  the  ground 
that  the  effect  of  the  difference  between  a  "  suspended  "  and 
an  "  expeUed ''  member  does  not  seem  to  have  been  fully  re- 
garded ;  inasmuch  as  a  "  susjiended  "  member  is  one  who 
under  the  I'ules  of  the  Exchange  can  be  restored  to  member- 
ship, whereas  an  "expelled"  member  forever  loses  his  prop- 


•  The  full  decision  of  Mr.  Justice 
Sedgwick  is  given  in  this  connec- 
tion: 

*'  It  seems  clear  to  me  that  Article 
XX.  of  the  Constitution  of  the  de- 
fendant means  that  before  a  mem- 
ber can  be  expelled  he  must  be 
found  guilty  by  a  vote  of  two  thirds 
of  the  members  of  the  committee 
present,  and  that  the  attempted  ex- 
pulsion was  void.  This,  of  itself, 
does  not  give  a  cause  of  action.  The 
illegal  act  must  have  some  relation 
to  a  right  which  the  law  can  pro- 
tect. It  must  appear  that  an  in- 
junction to  prevent  the  defendant 
acting  upon  the  illegal  expulsion 
^Nnll  permit  the  plaintiff  to  enjoy 
some  substantial  right,  capable  of 
present  or  future  actual  enjoyment. 
The  complaint  charges  that  the  de- 
fendant, under  the  pretence  of  the 
void  expulsion,  deprived  said  plain- 
tiff of  the  power  to  enter  said  build- 
ing, or  mart,  to  carry  on  such  busi- 
ness as  he  may  have  to  carr>'  on, 
and  has  unlawfully  deprived  him  of 
his  scat,  which  cost  him  ?2,000:  has 
•WTongfuUy  and  unlawfully  deprived 
him  of  the  interest  in  such  property 


as  the  association  may  own ;  and  has 
wrongfully  and  unlawfully  deprived 
him  of  all  the  rights  and  privileges 
incident  to  such  membership,  which 
are  xery  valuable  to  plaintiff,  and 
absolutely  essential  to  the  discharge 
of  plaintiff's  business  as  Broker. 

"The  testimony  showed  that  the 
defendant  did  exclude  the  plaintiff 
from  the  enjoyment  of  any  and 
ever}'  privilege  of  a  member,  of  a 
kind  that  would  actually  accrue  to  a 
member  in  his  lifetime,  and  did 
claim  that  he  was  properly  expelled. 
One  of  the  defences  was  that  before 
the  expulsion,  hnd,  by  reason  of  the 
plaintiff  becoming  insolvent,  he  be- 
came, by  force  of  certain  articles  of 
the  constitution,  a  suspended  mem- 
ber, or  suspended  from  member- 
ship, and  had  so  ever  remained. 
The  effect  of  this  suspension  was 
that  it  legally  deprived  him  of  every 
present  and  future  advantage  of 
membership,  and  until  he  should 
settle  with  his  creditors  and  should 
apply  for  readmission  to  member- 
.ship.  His  readmission  would  then 
depend  upon  the  vote  of  the  com- 
mittee or  committees  to  which  ap- 


Suspeusion  and  Expulsion.  83 

erty  and  privileges.^  If  tlie  basis  of  proceeding  against  a 
member  is  under  one  particular  rule^  and  the  action  of  the 
Exchange  held  to  be  unauthorized  and  illegal,  it  seems  rather 
anomalous  to  uphold  the  decision  in  ousting  a  member  upon 
another  rule  merely  justifying  suspension,  and  to  which  no 
reference  was  made  to  the  proceedings  before  the  Exchange.^ 
And  this  view  seems  to  have  finally  prevailed  in  the  case. 

The  most  recent  Xew  York  case  illustrative  of  the  power 
of    the   Stock   Exchange   over  its  members  is  Young   vs. 

plication  must  be  made.  The  right  that  of  itself  is  not  in  the  nat- 
testimony  was  that  he  had  not  ure  of  propert)-,  has  no  pecuniary 
applied  for  readniission,  and  that  value,  and  an  unlawful  exclusion 
he  had  not  made  a  settlement  with  from  it  could  be  adequately  com- 
his  creditors.  There  was  no  proof  pensated  by  damages.  The  second 
that  he  had  the  means  of  making  was  not  an  injury  to  the  plaintiff; 
one.  Therefore,  there  is  no  present  as,  from  the  nature  of  membership, 
right  recognized  by  the  constitu-  he  could  be  fully  reinstated  without 
tion  to  apply  for  readniission  or  setting  the  sale  a.side,  and  any  claim 
to  be  readmitted.  \  mere  lapse  of  of  right  to  a  resale  would  be  repug- 
time  will  not  Imng  him  to  such  a  nant  to  the  foundation  of  this  ac- 
right.     An  injunction  against  using   tion." 

the  void  expulsion  would  not  enable  "For  the  reason  that  the  plaintiff 
him  to  enjoy  or  go  into  pos.session  has  no  substantial  right  that  would 
of  any  advantages.  While  present  be  protected  by  injunction,  the  com- 
facts  exLst  there  is  no  po.ssibility  of  plaint  must  be  dismissed." — N.  Y. 
any  right  accruing  to  him;  and  Daily  Reg.  Vvd.  11,  1S79. 
whether  there  will  be  a  possibility  '  As  to  n>cognition  by  the  courts 
hereafter  is  incapable  of  dotermina-  of  the  difference  betwecti  suspen- 
tion,  if  a  mere  possibility  as  dis-  sion  and  expulsion  under  the  by- 
tinpiisho<l  from  a  contingent  right  laws  of  a  Ma.sonic  lodge,  see  Pal- 
to  the  subject  of  adjudication.  If  metto  Lodge  vs.  Hubbell,  2  Strob. 
there  be  a  doubt  as  to  the  corrcd-  Law  (S.  Car.),  457. 
ness  of  this,  it  rests  upon — first,  '  And  see  this  cjise  again  reported 
that  a  HUspeiidcKi  niciubcr  had  a  at  p.  126  of  this  chapter,  where  in  an 
right  Ui  go  into  what  tl>e  witness  action  against  the  Slock  K.xchange 
culled  the  "long  room;"  srcorul,  for  a  coTivcrsion  of  his  "scat"  tlie 
that  aft«T  the  attcm|)t<d  i-xpulsioii,  pl.iiutiff  recovered  damages  on  tlic 
and  before  a  year  hiwi  i)a>^He<l,  thiTc;  gnnnid  that  it  liad  l)een  illegally 
was  a  Hale  of  the  plaintiff's  right  of  dispo.sed  of  ijy  the  Stock  Kxchunge. 
nicmbeniliip.     Tlie  (irst  refers  to  u 


84  Stock-brokei^s  and  Stock  Exchanges. 

Eames.^  In  that  case  the  phiintilT,  who  liad  hcen  expelled 
for  fraud,  brou^-lit  an  action  against  the  Exchange  (h'lnand- 
ing  judgment  that  it  bo  deci'eed  that  he  was  a  nuMuber 
in  good  standing,  and  that  the  Exchange  be  restrained 
from  preventing  him  transacting  business  upon  the  Ex- 
change, thereby  compelling  the  defendant  to  prove  the 
validity  of  the  expulsion,  and  it  was  held  that  the  Exchange 
was  only  bound  to  prove  the  prej)aration  of  charges,  no- 
tice of  the  hearing,  the  calling  of  witnesses  and  the  decision 
reached,  and  that  the  committee  had  followed  the  proce- 
dure required  by  the  constitution,  and  that  it  was  not 
incumbent  on  them  to  produce  all  the  evidence  taken  be- 
fore them.  A  presumption  arose  that  the  decision  was 
valid,  and  it  rested  upon  the  plaintitf  to  show"  in  what  re- 
spect it  was  void.  It  was  also  held  that  the  plaintiff  was 
rightly  expelled  for  fraud,  although  under  another  rule  he 
might  have  been  only  suspended  for  making  a  fictitious 
sale,  Avhen  the  sale,  besides  being  fictitious,  was  also 
fraudulent,  and  of  which  the  Committee  was  to  be  the 
judge. 

The  case  of  Powell  vs.  Abbott^  illustrates  a  casein  which 
the  courts  will  interfere.  That  was  a  bill  in  equity  to  re- 
strain the  defendants,  members  of  the  Philadelphia  Mining 
and  Stock  Exchange,  an  unincorporated  association,  from 
carrying  into   effect  the   suspension    of  the   pjaintitf  from 

'  78  A.  D.  229.     See  also   lioard  mandamus  compelling;  his  roinstate- 

vs.Weare,  105  111.  App.  289.  ment  on  the  ground  that  the  com- 

'  9  Week.    Notes  Cas.    231,  Nov.  mittee  should  have  investigated  the 

1880.     When  a  member  of  the  New  question  of  adulteration,  as  he  could 

York  Coffee  E.xchange,  an  incorpo-  not  be  compelled  to  do  an  illegal 

rated    association,    was    suspended  act  (L.  1893,  c.  661,  §  41)  without 

from   membership   for   refusing  to  such  investigation.     Matter  of  Lur- 

pay  for  alleged  adulterated  coffee,  man,  149  N.  Y.  588. 
it  was  held  that  he  was  entitled  to 


Suspension  and  Expulsion.  85 

membership  in  the  association,  and  fiom  disposing  i^f 
certain  stock  belonging  to  him  and  deposited  as  secu- 
rity. 

The  bill  set  forth  that  the  plaintiff  had  made  a  time 
contract  with  A.,  one  of  the  defendants,  for  the  sale  of 
certain  mining  stock,  and  deposited  with  another  member 
of  the  Exchange  certain  shares  of  otber  stock  assecm*ity; 
that,  the  stock  having  advanced  in  price,  A.  demanded  a 
further  security,  which  plaintiff  declined  to  make,  on  the 
gromid  that  the  sales  at  the  advanced  price  were  fictitious ; 
that  the  question  was  then  referred  to  the  Arbitration 
Committee  of  the  Exchange,  whose  duty  it  \vas  to  investi- 
gate and  decide  all  claims  and  matters  of  difference  arising 
between  members  of  the  Exchange,  and  also  to  adjudicate 
such  claims  as  may  be  preferred  against  members  by  non- 
members,  when  non-members  agree  in  writing  to  abide  by 
its  decision.  The  decision  of  the  committee  shall  be  final, 
except  in  cases  involving  a  difference  of  one  hundred  dol- 
lars or  over,  when  either  party  may  appeal,  within  three 
days,  to  tlie  Exchange  for  final  adjudication.  The  com- 
mittee decided  that  the  plaintifi'  must  make  the  additional 
deposit  called  for  by  A.,  from  which  decision  plaintiff  forth- 
with notified  the  acting  chairman  of  the  Exchange  that 
he  apj)ealed  ;  but  betoi-e  any  luiilici'  action  could  be 
taken  on  said  appeal,  at  the  request  of  said  A.  the  acting 
chairman  of  said  Exchange  appointed  a  committee  of 
three  members,  who  called  upon  plaintiff,  and  inquired  of 
him  why  he  had  not  complied  with  the  report  of  the  .\rbi- 
tration  Committee.  IMaintill"  n-plied  to  them  that  he  had 
appeah'd  from  its  deeision.  The  said  coiiimittec;  thei't'U|)on 
re[)orted  l>a{:k  to  tlie  acting  chairtnaii  of  th(>  Ivxchangc  that 
the  following:  section  of  the;  bv-laws  be  eiifoi'ccMl  : 


86  Stock-brokers  and  Stock  Exchanges. 

"Section  XI.  Any  uRMuber  wlio  fails  to  comply  with  his 
contracts,  or  who  becomes  insolvent,  shall  immediately  in- 
form ti)e  chairman  of  the  Exchange  of  the  fact,  whose  duty 
it  shall  be  to  give  notice  forthwith,  from  the  chair,  of  the 
failure  of  such  member;  and  in  case  of  the  refusal  or  neg- 
lect of  such  delinquent  to  make  such  report  to  the  chairman, 
it  shall  be  the  duty  of  any  member,  having  a  knowledge  of 
the  fact,  to  report  the  same  forthwith  to  the  Governing 
Committee  or  the  chairman,  who  shall  thereupon  appoint  a 
committee  of  three  members  to  inquire  into  the  facts,  and  re- 
port thereon,  without  delay  ;  and  i  f  said  committee  report  the 
charge  to  be  true,  and  the  Exchange  confirm  the  report,  said 
member  shall  be  suspended  ;  and  it  shall,  furthermore,  be 
the  duty  of  the  Governing  Committee,  upon  receiving  in- 
formation thereof,  or  having,  directly  or  indirectly,  any 
knowledge  of  such  failure  on  the  part  of  any  member  to 
comply  with  his  engagements,  as  above  stated,  to  report  the 
same,  without  dela}',  to  the  chairman,  and-  ask  for  the  ap- 
pointment of  a  committee  as  before  provided.  xVnd,  in  case 
of  the  insolvency  of  any  member,  he  shall  within  three 
days  make  good,  to  the  full  amount  thereof,  all  friendly 
loans  of  cash  or  stock  from  members,  or  any  overdraft  on 
any  bank  ;  but  seven  days  shall  be  allowed  him  in  which  to 
settle  stock  contracts." 

A  meeting  of  the  members  who  "were  present  at  the  Ex- 
change in  the  afternoon  of  the  same  day  was  called,  without 
any  preliminary  notice,  to  take  action  on  the  report  of  the 
committee.  Plaintilf  protested,  at  the  time,  that  he  had  ap- 
pealed from  the  decision  of  the  Arbitration  Committee,  and 
asked  that  his  appeal  should  be  heard  before  any  further 
action  was  taken  in  the  matter.  Plis  objection  and  request 
were  overruled,  and  his  right  of  appeal  denied  him  ;  and  a 


Suspension  and*  Expulsion.  87 

motion  was  made  to  suspend  him,  which  w  us  thereupon  put 
and  carried. 

The  court,  after  commenting  upon  the  nature  of  the  associ- 
ation and  its  rules,  and  holding  that  where  there  was  a  con- 
flict between  the  constitution  of  the  association  and  by-laws 
the  former  must  prevail,  said  : 

''  But  whether  this  be  so  or  not,  the  right  of  the  plaintiff 
to  the  protection  of  a  court  of  chancery  rests  upon  the  denial 
to  him  of  his  right  of  appeal  from  the  decision  of  the  Arbi- 
tration Committee,  and  the  consequent  threatened  sacrifice 
of  his  rights  as  a  member  of  the  association,  and  the  sell- 
ing and  disposing  of  the  stock  deposited  as  security  for 
his  contracts  before  his  rights  have  been  adjudicated,  in 
the  manner  prescribed  by  the  constitution  of  tlie  associa- 
tion. 

"  It  has  been  alleged  by  the  learned  counsel  for  the  defend- 
ants that  the  plaintiff  has  a  legal  remedy  by  mandamus  for 
restoration  of  his  rights  as  a  member  if  he  has  been  im- 
properly suspended,  and  that  consequently  he  cannot  invoke 
the  equitable  powers  of  this  court. 

"  A  writ  of  mandamus  would  not  secure  to  the  ])laintiff  the 
protection  which  he  seeks.  The  object  of  that  writ  would  be 
to  restore  him  to  liis  rights  as  a  member  if  he  had  been  im- 
properly sus|>ended.  In  the  meanwhile  there  might  be  the 
threatened  sacrifice  of  his  property,  as  complained  by  him. 
And  as  tliiscourthaso(jnital)l(;  jurisdiction  fortliosuixM-vision 
and  control  of  these  associations,  and  to  prevent  threatened 
mischief,  upon  the  well-settled  principle  that  where  a  court  of 
equity  has  jurisdiction  for  any  j)urpos(;  il  will  di-aw  to  itself 
juri.sdiction  of  .ill  rpiestions  incident  to  the  sui)ject-rnatti!r  of 
inf|uiry,  to  make  a  final  (l<'t(*rmii\ation  of  tlu^  riglits  of  the 
parties,  and  to  prevent  multiplicity  of  actions,  I  think  the 


88  Stock-brokers  and  Stock  Kxcluiiij^es. 

jurisdiction  can  be  nuiintuiiicd/"  The  special  injunction 
was  accordingly  continued. 

Incorj)orated  Exchanges  have  in  more  than  one  instance 
made  it  an  express  recital  of  their  charters  or  certificates  of 
incorporation,  that,  the  purpose,  or  one  of  the  purposes,  in 
organizing,  was  to  "  inculcate  just  and  e(|uitablc  principles 
of  trade."  And  a  similar  purpose  is  readily  discernible  in 
the  constitution  and  rules  of  the  JS'e.v  York  Stock  Ex- 
change.' 

A  by-law  punishing  infractions  of  just  and  equitable  prin- 
ciples of  trade  is  to  be  liberally  construed  in  aid  of  its  pur- 
pose and  "  extends  to  conduct  in  respect  to  a  contract 
either  in  its  incejjtion  or  execution,  or  the  failure  to  execute 
it,  which  is  inconsistent  with  just  and  fair  dealing,  although 
it  may  fall  short  of  actionable  fraud,  and  although  it  is  not 
of  that  speciiic  and  definite  character  of  which  the  law  in 
an  action  between  the  parties  will  take  notice.  The  law 
does  not  undertake  to  enforce  mere  moral  obligations. 
Their  observance,  however,  by  parties  to  contracts  is  re- 
quired by  the  pi'inciples  of  commercial  honor  and  integrity, 
and  it  would  seem  to  be  the  policy  as  well  as  the  duty  of  an 
association,  organized  to  inculcate  just  and  equitable  princi- 
ples of  trade,  to  discourage  by  disciplinary  action  any  disre- 
gard of  business  rectitude  on  the  part  of  its  members  in 
their  business  transactions."  ^ 

A  person,  it  is  pointed  out,  "  may  perform  the  very  letter 
of  his  contract  and  respond  to  the  full  extent  of  the  law  and 

'  Bemheim  vs.  Keppler,  34  Misc.  Produce  Exchange,  149  N.  Y.  428; 

321.  Hurst  vs.  New  York  Produce  Ex- 

'  Per  Andrews,  C.  J.,  People  ex  change,  1  Cent.  Rep.  260;  People  ex 

rel.  Johnson  vs.  New  York  Produce  rel.  Thacher  vs.  New  York  Com- 

Exchange,    149   N.   Y.   411.       See  mercial  Assn.,  18  Abb.  Pr.  279. 
also  In  re  Haebler  vs.  New  York 


Suspension  and  Expulsion.  89 

yet  be  guilty  of  proceedings  inconsistent  with  tlie  just  and 
equitable  principles  of  trade.  He  may  exact  no  more  than 
the  pound  of  flesh  precisely  nominated  in  the  letter  of  his 
bond  and  yet  be  guilty  of  unfair  dealing  and  gross  miscon- 
duct.'' And,  therefore,  the  fact  that  the  matter  is  also  un- 
der judicial  investigation,  does  not  oust  the  jurisdiction  of 
the  Exchange.^ 

It  seems,  however,  that  the  simple  non-performance  by  a 
member  of  a  contract  is  not  within  the  by-law.  For  that 
there  is  usually  another  provision  of  the  by-laws.^ 

Such  a  by-law  will  reach  and  punish  a  member  for  offenses 
committed  outside  of  the  Exchange,  and  even  if  not  com- 
mitted against  a  fellow-member.^ 

A  member  is  not  acting  in  antagonism  to  the  corporate 
power  of  establishing  just  and  equitable  principles  of  trade, 
in  refusing  to  submit  to  an  adverse  report  by  a  committee 
upon  his  title  to  his  seat  in  the  Exchange,  there  being  no 
express  or  imj^lied  power  in  the  body  to  determine  the 
ownership  of  a  disputed  seat.^ 

In  a  recent  case  in  Wisconsin  a  temporary  injunction 
was  granted  against  the  ^Milwaukee  City  Chamber  of  Com- 
merce, enjoining  it  from  suspending  or  expelling  plaintiff 
from  the  Chamber  for  an  alleged  violation  of  a  rule  as  to 

'  Hurst  vs.  .\.  Y.  P.  Ex.,  1  Cent.  '  People  e.\  rcl.  Johnson  vs.  New 

Rep.  260,  and  other  rases  cited  in  York  Produce  Exchange,  149  N.  Y. 

preceding  note.    A  by-law  of  a  !>ody  410. 

haviiii^  umonj;  its  corporate  objects  '  In   -MatU-r  of   Ilax'bler  vs.   .\ew 

the  inculcation  of  just  and  equitable  York  Produce  Exchange  and  IVople 

principles   of  trade,    may   prcscriije  ex  rcl.  Thacher  vs.  New  York  Coni- 

Bu-speiLsion  for  the  breach  of  a  con-  niercial  .V.ssn.,  supra;  Dickenson  vs. 

tract,    even    though    the    contract  Chamber  (if  Commerce,  29  Wis.  4.5. 

violated  be  void  under  the  statute  *  People  ex  rel.  Elliott  vs.  Cotton 

of  frauds.      Dickenson  vs.  Chamber  Ex.,  S  Hun,  21(). 
of  Commerce,  29  Wis.  45. 


90  Stock-brokers  and  Stock  Exchanges. 

contracts,  it  appearing'  that  a  certain  contract  Avhich  plain- 
tiffs declined  to  fullil,  was  made  by  their  clerk  without 
their  autliority,  with  a  person  having  knowledge  of  the 
clerk's  scope  of  employment.' 

The  case  of  Leech  vs.  1  lurris  was  another  Stock  Exchange 
case,^  and  it  was  there  held  that  where  a  charter  of  a 
society  provides  for  an  offense,  directs  the  mode  of  proceed- 
ing, and  authorizes  the  society,  on  conviction  of  a  member, 
to  expel  him,  this  expulsion,  if  the  proceedings  are  not 
irregular,  is  conclusive,  and  cannot  be  inquired  into  collater- 
ally by  mandamus,  action,  or  any  other  mode. 

It  is  like  an  award  made  by  a  tribunal  of  the  party's  own 
choosing,  for  he  became  a  member  under  and  subject  to  the 
articles  and  conditions  of  the  charter,  and,  of  course,  to  the 
provisions  on  this  subject  as  well  as  others.  The  society 
acts  judicially,  and  its  sentence  is  conclusive,  like  that  of 
any  other  judicial  tribunal.^  The  courts  entertain  a  juris- 
diction to  preserve  these  tribunals  in  the  line  of  order,  and 
to  correct  abuses;  but  they  do  not  inquire  into  the  merits 
of  what  lias  passed  in  rejnjudicatam  in  a  regular  course  of 
proceedings.^ 

But  it  seems,  in  view  of  the  generall}'^  summary  character  of 

>  Bartlett  vs.  Bartlctt,  93  N.  W.  Board  of  Trade,  78  Mo.  App.  557; 

(Wis.)  473.  Ryan  vs.  Ciidahv,  157  111.  108;  Nel- 

'  2  Brews.  571.  The  court  cited  the  son  vs.  Board  of  Trade,  58  111.  App. 

following    authorities:    Commonw.  399. 

vs.  Pike  Benev.  Soc,  8  W.  it  S.  247;  ^Hutchinson    vs     Lawrence,    67 

The  ^^^lite  and  Black  Smiths'  Soc.  How.  Pr.  39;  Solomon  vs.  McKay,  49 

vs.  Van  Dyke,  2  WTiart.  309;  The  N.Y.  Super.  Ct.  138;  People  ex  rel. 

Soc.forthe  Visitation  of  the  Sick  vs.  Johnson    vs.    N.    Y.    Produce   Ex- 

The    Commonw.,   2  P.    F.    Smith  change,  149  N.  Y.  401;  Lewds  vs. 

(Pa.),  125  Wilson,  121  N.  Y.  284;  Pitcher  vs. 

'  Otto  vs.  Tailor's  Union,  75  Cal.  Board  of  Trade,  121  111.  412;  Nelson 

309;    Albers    vs.    Merchants'    Ex-  vs.  Board  of  Trade,  58  111.  App.  399; 

change,   138  Mo.   164;  Farmer  vs.  Otto  vs.  Tailors'  Union,  75  Cal.  308. 


Suspension  and  Expulsion.  91 

the  proceedings,  ami  that  they  are  not  subject  to  review  by 
the  ordinary  process  of  appeal,  that  a  total  absence  of  evi- 
dence to  support  the  sentence  of  ex})ulsion  should  have  the 
same  force  in  a  mandamus  proceeding,  as  an  absence  of 
jurisdiction  to  make  any  inquiry  at  all.^ 

The  case  of  Moxey's  Appeal,  decided  by  the  Supreme 
Court  of  Pennsylvania,  January,  1881,^  is  an  adjudication 
upon  this  subject. 

In  that  case  Moxey,  in  1875,  became  a  member  of  the 
Philadelphia  Stock  Exchange,  and  transacted  business  therein 
until  July  29,  1876.  At  or  about  this  time,  the  firm  of  B., 
M.  &  Co.,  of  which  the  plaintiff  was  a  member,  purchased  a 
large  number  of  shares  of  a  certain  company,  from  different 
members  of  the  Board.  Before  the  time  of  deliver}',  however, 
Moxey  gave  written  notice  to  the  president  of  the  board  of 
their  insolvency,  under  Section  XL  of  the  rules  of  the  associ- 
ation which  we  fully  quoted  before  (p.  80),  except  §  3,  })ara- 
graph  1,  which  isas  follows  :  "  If  any  suspended  member  fail 
to  settle  with  his  creditors,  and  appl}'  f or  readmission  within 
one  year  from  the  time  of  his  suspension,  his  membership 
shall  be  disposed  of  by  the  Committee  on  Admissions,  and 
the  proceeds  paid  irro  rata  to  his  creditors  in  the  Exchange. 
The  Governing  Committee  may,  by  a  vote  of  two  thirds 
of  the  members  present,  extend  the  time  for  settlement, 

'  People  ex  rc-l.  Johnson  vs.  N.  Y.  Suspen.sion  is  a  jiulicial  act  based 

Produce  ExchjinRc,  HON.  Y.  401;  on  something  which  calls  for  such 

Bishop  vs.  Cincinnati  Chamber  of  suspension.     Stack  vs.  O'llara,  98 

Commerce,  5  f)hio  N.  P.  365.  Pa.  St.  232. 

The    expulsion     of    a    member,  '  Week.   Notes  of  Cas.   410;   af- 

nominully  for  an  ofTenc*'  for  which  firmiiiK  s.   c.   mih  nom.   Moxey   vs. 

such  punishment  is  proper,  but  in  Phila.    Stock    Exchange,    37    Leg. 

reality    for    an    ofTcnce    punirthable  Int.   82. 
only  by   fine,   is  invalid.     Otto  vs. 
Tailors'  I'nion,  Ifi  Cal.  308. 


92  Stock-brokers  and  Stock  Exchauges. 

and  for  application  for  readinission,  of  such  suspended 
member." 

The  rules  allowed  a  suspended  member,  presenting  a  cer- 
tificate of  discharge  under  the  United  States  Bankrupt  Laws, 
to  become  eligible,  providing  that  upon  a  ballot,  where  not 
less  than  lif tv  votes  are  cast,  and  not  more  than  fifteen  black- 
balls appear  against  him,  he  may  be  reinstated  ;  but  such  ap- 
plication shall  be  referred  to  a  standing  committee,  whose 
duty  it  shall  be  to  ascertain  that  the  applicant  has  settled 
and  arranged  his  affairs  to  the  satisfaction  of  his  creditors, 
and  that  his  present  situation  affords  a  reasonable  security  in 
future  transactions  ;  and  unless,  and  until,  the  said  committee 
report  in  favor  of  readmitting  the  said  suspended  member, 
he  shall  be  held  to  be  still  in  default,  and  no  vote  to  restore 
him  to  his  seat  shall  be  had.  On  January  15,  1S7T,  plain- 
tiff went  into  voluntary  bankruptcy,  and  obtained  his  dis- 
charge on  December  21,  1877.  On  January  15,  1878,  he 
wrote  to  the  Secretary  of  the  Stock  Exchange  that  he  had 
obtained  his  discharge  in  bankruptcy,  and  he  received  an 
answer  that,  if  he  desired  to  apply  for  readmission  under 
the  rules  of  the  Stock  Exchange,  the  matter  would  be  im- 
mediately referred  to  the  standing  committee  and  be  invjes- 
tigated. 

The  letter  also  notified  him  that,  as  more  than  a  year  had 
elapsed  since  his  suspension,  the  Exchange  considered  itself 
entitled  to  sell  his  seat  at  any  time.  No  notice  was  taken  of 
this  letter,  and  on  July  5,  1878,  plaintiff's  seat  was  sold,  on  de- 
mand of  his  creditors,  at  public  sale  of  the  board,  after  post- 
ing and  notice  in  accordance  with  the  rules.  At  the  time 
he  joined  the  Stock  Exchange  a  Gratuity  Fund  existed,  pay- 
able on  the  death  of  a  full  member  (whether  suspended  or 
not)  to  his  nominee,  widow,  child,  or  legal  representative. 


Snspeusiou  and  Expulsion.  93 

On  November  15,  1ST7,  this  was  altered  so  that  any  sus- 
pended member  who  failed,  for  three  months,  to  pay  in  full 
all  gratuity  dues  and  assessments  should  cease  to  be  a  full 
member  for  the  purposes  of  the  Gratuity  Fund.  Moxey  was 
notified  of  the  passage  of  this  provision,  but  failed  to  pay  his 
dues,  and  on  March  7,  IS 78,  was  notilieil  that  he  was  debarred 
from  participating  in  the  benefit  thereof. 

lie  filed  a  bill  in  equity  against  the  Stock  Exchange,  al- 
leging that  b}'^  far  the  greater  part  of  the  indebtedness  of 
B.,  M.  <t  Co.  was  merely  fictitious,  being  founded  upon  con- 
tracts for  the  sale  and  delivery  of  certificates  of  stock  which 
had  no  real  existence  ;  that  they  constituted  gambling  trans- 
actions, and  that  the  payment  of  such  debts  would  be  in  vio- 
lation of  the  Bankrupt  Act. 

The  court  dismissed  the  bill,  holding  that,  irrespective  of 
the  alleged  gambling  transactions,  the  evidence  showed  a 
large  indebtedness,  whicii  plaintiff's  firm  was  unable  to  meet ; 
that  by  filing  his  petition  in  bankruptcy,  the  plaintiff  had  con- 
fessed his  insolvency,  and  that  he  had  not  shown  any  offer 
to  liquidate  his  indebtedness  or  arrange  with  his  creditors 
under  the  rules  of  the  Stock  Exchange ;  and  that  the  plain- 
tiff had  been  suspended  in  accordance  with  the  rules,  on  his 
own  confession  and  acts,  and  could  not  be  restored  except 
under  the  rules,  which  ho  had  not  complied  with. 

Upon  appeal,  the  judgment  of  the  lower  court  dismiss- 
ing the  bill  was  sustained  ;  the  appellate  tribunal  holding 
that,  as  the  firm  of  which  the  plaintiff  was  a  member  had 
admitted  their  inability  to  fuUil  their  contracts,  and,  under 
the  by-laws  of  the  Stock  P2xchang<',  plaintiff  was  immedi- 
ately sus|)ended,  no  trial  was  necessary  in  such  a  case,  tlie 
member  having  pleaded  guilty.  That  the  l)ankru])tcv  had 
the  same  effect.     The  court  could  see  nothing  unreason- 


94 


Stock-brokers  au«l  Stock  Exchanges. 


able  ill  the  rule  that  before  such  a  i)arty  could  be  readmitted 
lie  must  settle  with  his  creditors  who  are  members  of  the 
Exchange.  It  may  give  them  an  advantage  over  other 
creditors,  but  they  have  a  right  to  stii)ulate  for  it,  and  the 
appellant  was  a  party  assenting  to  the  law.  No  suggestion 
appears  to  have  been  made  that  the  assignee  in  bank- 
ru})tcv,  in  whom  all  the  assets  of  the  plaintiff  had  become 
vested,  was  the  proper  party  to  recover  any  money  or 
property  to  which  plaintiff  might  be  entitled  ;  but  the  case 
was  determined  upon  the  grounds  just  stated.^ 


'  See  also  in  this  connection, 
MacDowell  vs.  Ackley,  Supreme  Ct. 
Pa.  8  Week.  Notes  of  Cas.  664.  A 
similar  rule  was  held  reasonable  in 
Sexton  vs.  Commercial  Exchange, 
10  Pa.  Ct.  C.  607. 

As  to  when  an  allegation  that  a 
contract,  in  respect  of  which  plain- 
tiff was  suspended,  was  a  gambling 
one,  will  not  avail,  see  Lewis  vs. 
Wilson,  121  N.  Y.  281.  In  that 
case  it  was  expressly  urged  as  a 
ground  for  the  exercise  of  the 
equitable  power  of  the  court  to 
compel  restoration  to  membership 
that  the  contract  for  the  breach  of 
which  the  member  was  suspended 
was  of  a  gambling  character  and 
illegal  and,  therefore,  its  violation 
was  not  a  "breach  of  contract"  un- 
der the  rules  of  the  Exchange.  The 
court  ruled  against  the  point  and 
sustained  the  Consolidated  Stock 
and  Petroleum  Exchange  of  New 
York  in  suspending  the  member, 
holding  that  whether  the  contract 
to  which  the  complaint  before  the 
committee  related  was  valid  or  void 
was  wliolly  irrelevant,  and  that  the 
plaintiff  could  not  insist  upon  re- 


maining a  member  of  this  associa- 
tion while  at  the  same  time  he 
repudiated  the  conditions  of  mem- 
bership. That  having  been  sus- 
pended in  strict  conformity  with 
the  constitution  of  the  Exchange, 
and  having  had  an  opportunity  to 
be  heard,  and  the  charge  having 
been  examined  by  the  proper  com- 
mittee, his  suspension  was  Aalid. 
The  court  said:  "The  members  of 
the  association  may,  if  they  so 
agree,  say  that  no  associate  shall 
remain  a  member  and  enjoy  the 
privileges  of  the  association  if  he 
refuses  to  comply  with  its  rules. 
It  may  be  true  that  the  committee, 
if  the  facts  had  been  presented  and 
proved  as  there  claimed  bj-  the 
plaintiff,  would  nevertheless  have 
regarded  the  gambling  element  as 
no  excuse  to  the  plaintiff  for  not 
performing  his  contract.  But 
whether  the  committee  should  de- 
cide rightly  or  wrongly  does  not 
change  the  attitude  of  the  plaintiff 
as  a  member  of  the  as.sociation,  or 
qualify  his  obligation  to  submit  to 
the  decision  of  t^e  agreed  tribunal 
under  pain  of  suspension.     .     .     . 


Suspension  and  Kxpulsion.  95 

When  a  rule  of  an  association  provided  that  "  any  mem- 
ber failing  to  pay  his  assessment  within  thirty  days  shall 
be  suspended,"  it  was  held  that  the  non-payment  of  an 
assessment  was  not  of  itself  a  suspension,  and  that  the 
association  should  take  some  affirmative  action  to  make 
such  suspension  valid. ^ 

Finally,  upon  this  question,  it  should  be  stated  that,  in  all 
cases  in  which  a  member  is  proceeded  against  with  a  view 
to  his  expulsion,  it  is  necessary  that  the  proceedings  should 
be  conducted  in  accordance  with  the  constitution  and  by- 
laws of  the  association,-  and  that  he  should  be  dulv  notified 
to  appear,  and  be  allowed  an  opportunity  to  explain  his  acts 
or  be  heard  in  his  defence,^  even  although  the  rules  of  the 

There  is  an  intimatiou  in  the  argu-  The  failure  on  his  part  to  request 

nient  of  the  plaintiff's  counsel  that  the  pri\'ilege  to  be  present  is  no 

the  Exchange  was  organized  as  a  answer  to  his  exclusion,  for  he  is 

cover  for  illegal   trading.     If  this  not  legally  bound  to  ask  such  privi- 

was  the  truth  the  plaintiff  is  in  the  lege,  but  the  committee  taking  ac- 

plight  of  asking  the  court  to  exert  tion  upon  the  evidence  obtained,  is 

its  equitable  powers  to  reinstate  him  legally  bound  to  extend  and  secure 

as  a  member  of  this  illegal  body."  the   opportunity   for   a  hearing  to 

'  Scheu  vs.  Grand  Lodge,  17  Fed.  him,    before  it    can    proceed   to   a 

214.  hearing    and    consideration  of   the 

'  People  vs.  Musical  Mutual  Pro-  case.     Loubat  vs.  Le  Hoy,  40  Hun, 

tective  Union,  118  N.  Y.  101.  546. 

*  Ang.  &  Ames  on  Corps.   (11th  See,    however,    Blumcnthal    vs. 

ed.)   5  420;  People  ex  rel.  Johnson  Cincinnati  Chamber  of  Commerce,  7 

vs.  N.  Y.  Produce  Exchange,   149  Wkly.   L.   Bull.  327;  S    Ohio    Dec. 

N.   Y.   401;   Hutchinson   vs.   Law-  liep.  410,  where  it  w:us  held  that  the 

rencc,  67  How.  Pr.  3S;  Loubat  v.s.  I.,e  Chamljcr  had  jurisdiction  to  try  and 

Hoy,  1.5  .\bb.  N.C.I;  40  Hun,  .546;  indcfmiuly  .suspend  a  meml)cr  for 

I>fwi.s  vs.  Wilson,   121   X.  Y.  2K4;  unmercantile  conduct  although  ho 

Kuehnemundt  v.s.  Smith,  2  X.  Y.  ha<l  not  received  any  notice  of  the 

Supp.   62.5;   Albers   vs.   Merchants'  charges  preferred  against  him.     A 

Exchange,  39  Mo.  .\pp.  .5S3;  People  preliminary  inquiry  into  charges  by 

vs.  San  FnincLscuM  lienev.  Soc,  24  a  conuniltee  to  determine  wliether 

How.    Pr.   (X.   Y.)   216;  Stack   vs.  cliarges  shall  l)e  preferred,  witliout 

O'Hara,  9H  Pa.  St:  213;    Kritz    vs.  ncitice  to  the  member  concerned,  is 

Muck,  62  How.  Pr.  69.  not   improper,  since   such    prelimi- 


96 


Stock-brokei-s  and  Stock  Exchanges. 


association  do  not  so  provide.^  In  other  words,  there  must 
be  a  charge  made  against  him  sufficient  in  form  to  fairly  in- 
form tlie  member  of  what  he  is  charged;'-  he  should  be  noti- 
fied of  the  charge  and  a  time  set  for  its  hearing,  not  too 
limited  to  prevent  the  accused  from  pi-operly  collecting  his 
proofs  and  producing  his  witnesses  ;  and  the  hearing  or  trial 
of  the  charge  should  include  the  right  to  examine  his  own 
witnesses  and  cross-examine  those  against  him,  and  to  pre- 
sent such  suggestions  as  he  may  deem  proper,^ 


narj-  inquir^^  is  not  a  trial.  Green 
vs.  Board  of  Trade,  174  111.  5S5  . 

'  Fritz  vs.  Muck,  62  How.  Pr.69. 

'  Hutchinson  vs.  Lawrence,  67 
How.  Pr.  38,  at  p.  52;  People  ex  rel. 
Johnson  vs.  X.  Y.  Produce  Ex- 
change, 149  N.  Y.  401;  In  re  Haeb- 
ler  vs.  N.  Y.  Produce  Exchange,  149 
N.  Y.  414;  Cannon  vs.  Toronto  Corn 
Exchange,  5  Ont.  App.  268.  To 
require  technical  precision  in  com- 
plaints of  thi.s  character,  dra^wn  by 
merchants  or  business  men,  and  to 
apply  to  them  the  strict  rules  of 
pleading  in  an  action  in  a  court  of 
law,  would  greatly  embarrass  and 
many  times  defeat  the  disciplinary 
regulations  of  such  associations. 
People  ex  rel.  Johnson  vs.  X.  Y. 
Produce  Exchange,  supra.  And 
even  if  a  complaint  be  objectionablj'' 
vague  and  indefinite,  an  appearance 
by  the  accused  without  objection 
to  its  sufficiency  and  a  trial  of  the 
case  upon  its  merits,  renders  it 
sufficient  and  objections  thereon  on 
that  account  must  be  regarded  as 
waived.  In  re  Haebler  vs.  X'.  Y. 
Produce  Exchange,  149  X.  Y.  414. 
But  if  a  copy  of  the  charges  are  not 
served   upon    the    member  as  re- 


quired by  the  by-laws,  and  his  sub- 
sequent conduct  before  the  board 
of  directors  does  not  amount  to  a 
waiver  of  the  defective  procedure, 
his  expulsion  is  illegal.  People  vs. 
Musical  Mutual  Protective  Union, 
118  X.  Y.  101. 

'  Hutchinson  vs.  Lawrence,  67 
How.  Pr.  38,  where  it  was  held  that 
a  re-examination  of  complainant  in 
the  defendant's  absence,  and  the 
taking  of  additional  testimony,  with- 
out opportunity  of  cross-examina- 
tion, were  improper.  The  conclu- 
sions reached  in  this  case  are  not 
entirely  satisfactory,  because  it  did 
not  appear  that  the  expelled  mem- 
ber had  requested  to  be  present  and 
cross-examine  the  witnesses  or  that 
the  usages  of  the  Exchange  had 
established  any  such  practice. 
Moreover  the  cases  relied  upon  by 
the  learned  judge  were  of  a  class 
where  the  parly  expelled  had  been  re- 
fused a  Jiearing,  or  had  requested  to  be 
further  heard,  which  was  not  the 
fact  in  the  Hutchinson  case. 
Kuehnemundt  vs.  Smith,  2  N.  Y. 
Supp.  62.5;  Loubat  vs.  Le  Roy,  40 
Hun,  546.  The  right  to  cross- 
examine    opposing   witnesses   may 


Siispeusiou  and  Expulsion.  97 

These  requirements  having  been  met  and  the  offense  be- 
ing one  of  whicli  the  committee  has  jurisdiction,  a  mem- 
ber, by  not  making  his  defences  then  and  there,  is  held  to 
have  waived  them.'  It  has  been  intimated  '^  that  on  such 
a  trial  the  accused  member  is  entitled  to  be  represented  by 
counsel,  and  Chief  Justice  Shaw  in  an  early  case,^  review- 
ing the  action  of  tlie  board  of  trustees  of  a  corporation, 
held  that  to  make  binding  the  decision  of  any  tribunal  act- 
ing judiciallv  upon  the  rights  of  others,  there  should  be 
substantially  (1)  a  monition  or  citation  to  him  to  ajipear ; 
(2)  a  charge  given  him  to  which  he  is  to  answer  ;  (3)  a  com- 
petent time  assigned  for  his  proofs  and  answers  ;  (4)  liberty 
of  counsel  to  defend  his  case,  and  (5)  a  solemn  sentence  af- 
ter hearing  the  proofs  and  answers.  It  has  been  held,  how- 
ever,^ that  a  by-law  providing  that  "  in  investigations  before 

be  waived  by  neglect  to  claim  it  at  not  raised   by  the   pleadings,   and 

the    proper    time.     Kuchncnmndt  (Ncukirch    vs.   Kepplcr,   5G    A.   D. 

vs.  Smith,  supra.  230)  because  plaintiff  had  not  asked 

'  Bishop  vs.  Cincinnati  Chamber  for  counsel. 
of  Commerce,  5  Ohio  N.  P.  365.        *  Green  vs.  Board  of  Trade,  174 

See  also  State  vs.  Id.,  4  Ohio  X.  P.  111.    5S5.     A   by-law    of    the    Mer- 

244;  Lewis  vs.  Wilson,  121  N.Y.  284.  chants'  E.vchange  of  St.  Louis  pro- 

*  By  Barrett,  J.,  in  Gebhard  vs.  vided  that  in  investigations  before 

N.  Y.  Club,  21  Abb.  X.  C.  248,  at  the  board,  either  parly  should  be 

p.   252.     In   Hutchinson   vs.   Law-  allowed    to    be    represented    by    a 

fence,  07  How.  Pr.  3.S,  it  appeared  meinlier,      either     a.s     professional 

that  at  a  meeting  of  tlie  governing  coun.scl  or  as  a  friend.     It  was  hcKl 

committee  of  the  Stock  Exchange,  in  .\lbers  vs.  Merchants'  Exchange 

preliminary     to     hearing     charges  of  St.  Louis,  138  Mo.  1G3,  that  the 

agaiast  the  plaintiff,  a  nmtion  on  board   might  be   advised  by  their 

behalf  of  the  latter  to  be  defended  counsel  as  to  the  legality  of  a  by- 

by  coun.sel  wjis  dffcatcd.  law  under  which  plaintiff  wjis  s\is- 

'  .Murdcjck  vs.  Pliiiiips'  Academy,  pended   even    though   such   coun.scl 

29  .Mjws.  203.     In  Young  vs.  Eames,  was  a  member  of  the  board.     The 

7.S  A.  I).  CS.  \ .)  220,  plaintiff  ol)-  principle  of  trial  l)y  jury  is  in  no 

jert«'d  that  he  had  no  counsel,  and  way  applicable  to  such  triiil.      Pc<»- 

the  court  held  that  ."uch  objection  pie  ex  n  I.  Tlwu-hcr  vs.  rouuncrci.'il 

could  not  be  considered  as  it  was  .Vssn.,  IS  .\1)1).  I'r.  27L 

7 


98  Stock-brokers  aud  Stock  Exchanj^es. 

the  board  of  directors  or  any  committee  of  the  association, 
no  partv  shall  1)0  allowed  to  be  represented  by  professional 
counsel,"'  was  not  against  public  policy  or  unreasonable. 
The  rules,  the  coui-t  said  in  that  case,  "  provide  a  tribunal 
and  proceduiv,  voluntarily  chosen  to  determine  questions 
arising  between  the  association  and  its  members,  to  which 
the  members  assented  on  being  admitted.''  In  fine,  he 
should  be  allowed  a  full  and  fair  opportunity  of  defending 
himself.' 

The  fact  that  the  charges  are  preferred  by  a  member  of 
the  committee  which  is  to  try  the  same  is  not  a  cause  for 
interference  by  injunction  to  prevent  the  trial.^ 

This  question  of  notice  was  considered  by  the  Court 
of  Appeals  of  New  York,  in  AVachtel  vs.  Noah  Wid- 
ows and  Orphan's  Benevolent  Society;^  and  it  was  held 
that  an  association  whose  members  become  entitled  to  priv- 
ileges or  rights  of  property  therein  cannot  exercise  its 
powers  of  expulsion  without  notice  to  the  party  charged  or 
Avithoiit  giving  him  an  opportunity  to  be  heard ;  and  that 
where  the  charter  of  a  beneficiary  association  provided  that 
the  secretary  should  give  to  a  member  who  is  six  months  in 

'  And  the  accused  member  is  not  That  the  charges  on  which  a  mem- 

merely  entitled  to  be  present  at  the  ber  has  been  suspended  after  due 

taking  of  the  evidence  but  also  at  notice  and  a  fair  trial  were  preferred 

the    rendition    of    the    judgment,  by  an  employee  not  a  member  of 

Loubat  vs.  Le  Roy,  40  Hun,  556.  the  Exchange,  will  not  invalidate 

^  Green  vs.  Board  of  Trade,  174  the    proceeding.     Albers    vs.    Mer- 

111.  585.     The  presumption  cannot  chant's    Exchange,    39    Mo.    App. 

be  entertained  that  the  board  would  583. 

not  give  the  member  a  fair  trial.  '84N.Y.2S.     For  other  cases  re- 

Ibid.     See    also  Jackson  vs.  South  lating  to  power  of  unincorporated 

Omaha  Live  Stock   Exchange,   49  associations  to  expel  a  member,  see 

Neb.  687,  and  compare  Temple  vs.  preceding  subdivision,  p.  59  ;  Foster 

Toronto  Stock   Exchange,   8   Ont.  vs.  Harrison,  Week.  Notes  of  Cas. 

705  171. 


Suspension  and  Expulsion.  99 

arrear  a  written  notice  of  the  fact,  and  that  "  he  shall  be 
stricken  from  the  roll  if  he  does  not  pay  his  dues  within 
thirty  days,"  a  notice  was  essential  to  deprive  the  member 
in  arrears,  or  his  I'epresentative  after  his  death,  of  the  bene- 
fits of  memberehip  in  the  society ;  and  that  the  fact  that 
the  member  Lad  changed  his  place  of  residence,  without 
notifying  the  society,  was  not  an  excuse  for  a  failure  to 
serve  a  notice  upon  him,  especially  when  there  was  a  spe- 
cific penalty  imposed  in  the  by-laws  of  the  society  upon  a 
member  chancjing:  his  residence  without  ffivinor  notice.^ 

O        O  DO 

In  the  celebrated  case  of  Labouchere  vs.  Earl  of  Wharn- 
clifife^  several  important  questions  relative  to  the  expulsion 
of  members  of  voluntary  associations  were  considered.  One 
of  the  rules  of  the  club,  of  which  plaintiff  was  a  member, 
provided  that  "  in  case  the  conduct  of  any  member,  either 
in  or  out  of  the  club,  shall,  in  the  opinion  of  the  committee, 
after  inquiry,  be  injurious  to  the  welfare  and  interests  of 
the  club,  the  committee  shall  call  on  him  to  resign." 

The  court  held  that  the  words  "after  inquiry  "  did  not 
mean  that  the  committee  might  take  up  a  newspaper,  see 
in  it  tliat  ^Iv.  A.  B.  has  written  an  objectionable  letter,  or 
has  l)e(*n  brought  up  at  a  p<^lice-court  for  drunkenness,  and 
then  expel  him  ;  but  that  the  inquiry  should  ])e  a  fair  one 
into  the  truth  of  the  alleged  facts.  That  where  the  eon- 
duct  of  a  meml>er  is  impugned,  such  conduct  should  bci 
inquired  into;  and  the  committee  making  the  inquiry  ought 
to  see  what  excuse  or  reason  the  accus(Ml  member  can  give 
for  it,  and  they  ought  to  give  him  notice  that  his  conduct  is 

'  See  also  liartlctt  vs.  Med.  Hoc,  Consult  iilso  Olory   vs.    lirowii,   r>l 

32  N.  V.  1X7;  ("oriiiiionw.  vs.  IViins.  How.  Pr.  02. 
IJcnev.   Hoc,  2   S.    i1-    Hiiwl.-,    Ill;        M..  R.  i:U'li.  Div.  ;M(i 
TntK-*!    VM     Wylie,    1    C     <V    K     2^7. 


100  Stock-hrokcis  and  Stock  Exchanges. 

about  l«)  bo  investigated,  and  afford  liiiii  an  opportunity  of 
stating  his  case  to  them.  And  the  notice  should  not  be 
ambiguous,  but  should  clearly  inform  the  member  that  his 
conchict  was  to  be  investigated.  At  a  special  meeting  of 
the  committee,  held  on  the  16th  of  October,  1879,  it  was 
resolved  that  the  plaintiff  be  called  upon  to  resign  in  ac- 
cordance with  the  above  rule.  This  he  refused  to  do. 
Rule  31  of  the  chib  provided  that  the  committee  should, 
at  any  time,  have  i)ower  to  call  a  general  meeting  on  giv- 
ing a  fortnight's  notice.  On  the  evening  of  the  31st  of 
October  an  adjourned  meeting  of  the  committee  was  held, 
which  continued  in  session  into  the  following  morning  ;  at 
which  meeting  it  was  resolved  to  call  a  general  meeting  of 
the  club  to  consider  the  expulsion  of  the  plaintiff.  Xotice 
was  posted  in  the  club-house  at  3.  a.  m.  of  the  same  morn- 
ing, the  1st  of  November,  calling  such  a  meeting  to  be  held 
on  the  llrth  of  November ;  and,  in  the  course  of  the  1st  of 
Xovember,  notices  were  mailed  to  the  members  of  the  club. 
According  to  the  statement  of  the  secretary  of  the  club, 
the  notice  posted  in  the  club-house  at  3  a.  m.  on  the  morn- 
ing of  the  1st  of  IS^ovember  would  be  reckoned,  having  re- 
gard to  the  custom  of  the  club,  as  being  done  on  the  31st 
of  October,  on  M'hich  day  the  notice  was  dated.  On  the 
14th  of  November  the  general  meeting  of  the  club  was 
held.  There  were  one  hundred  and  seventeen  members 
present,  all  of  whom  voted,  except  the  plaintiff  and  one 
other;  of  whom  seventy-seven  voted  for  the  committee, 
and  thirty-eight  for  the  plaintiff.  The  plaintiff  was  present, 
addressed  the  meeting,  and  protested  against  his  expulsion  ; 
but  made  no  objection  to  the  proceedings  on  the  score  of 
irregularity  or  the  insufficienc}''  of  the  notice. 

In  respect  to  the  sufficiency  of  the  notice,  the  court  held 


Snspeusiuii  and  Expulsion.  101 

that,  the  notice  having  been  first  posted  on  the  1st  of  Novem- 
ber, it  was  not  a  fortnight's  notice,  and  that,  therefore,  the 
meeting  was  irregularly  called.  That  a  fortnight  had  a 
definite  legal  meaning,  and  Avas  not  affected  by  the  secre- 
tary's notion  of  the  club-day.  It  was  further  held  that 
the  plaintiff  had  not  waived  the  irregularity  by  addressing 
the  meeting :  that  the  plaintiff  had  said  that  he  protested 
against  his  expulsion,  and  that  Avas  sufficient.  In  respect 
to  whether  plaintiff  had  been  expelled  by  a  two-thirds  vote 
of  "those  present,"  the  court  said:  "The  rule  of  the  club 
was  to  the  effect  that,  in  the  event  of  a  member  refusing 
to  resign,  a  general  meeting  f)f  members  sliould  be  called, 
at  which  it  should  be  competent  for  two  thirds  of  '  those 
present'  to  expel  him.  Xow,  Mr.  Labouchere  has  stated 
that  there  were  one  hundred  and  seventeen  persons  present, 
of  whom  one  hundred  and  fifteen  voted  ;  that  he  himself 
was  present,  but  ditl  not  vote ;  and  that  the  number  who 
voted  for  his  expulsion  was  seventy-seven.  It  is  clear, 
therefore,  that  if  there  were  one  hundred  and  seventeen 
persons  present,  seventy-seven  were  not  two  thirds  of 
the  number.  The  expulsion  was,  therefore,  irregularly 
made. 

"  When  a  resolution  is  put  to  a  meeting,  the  persons  pres- 
ent may  take  one  of  these  courses  :  they  may  vote  for  or 
against  it;  or,  not  wishing  to  express  a  positive  opinion  on 
the  (juestion,  refrain  fi-om  voting  at  all.  This  being  so,  those 
wh(j  do  not  vote  may,  by  not  doing  so,  turn  the  scale  in  fa- 
vor of  the  accused  member  of  the  club.  It  was,  therefore, 
th(j  <luty  of  the  secretary  to  a.scertain,  lii-st,  how  many 
persons  were  present  wht-n  tlu;  ([ucstion  was  put,  iind, 
secondly,  how  many  of  thost;  prcscMit  had  voted  for  the 
r«'soliiiioii  ;    but  no  such  course  has  been  adcjptcd   in   this 


102  Stock-brokers  and  Stock  Exchanges. 

instance.  It  appears  to  me,  then,  tliat  this  also  is  a  fatal 
objection.'' ' 

So,  in  Fisher  vs.  Keanc,'  in  an  action  against  the  Trustees 
and  Committee  of  the  Army  and  Navy  Club,  asking  for  a 
dechiration  that  a  resolution  purporting  to  expel  the  plain- 
tiff from  membership  in  the  Army  and  Navy  Club  was  null 
and  void,  Jessel,  M.  H.,  construed  the  rule  under  which  the 
plaintiff  was  expelled,  and  held  that  the  action  of  the  com- 
mittee was  irregular,  and,  furtlier,  decided  that  a  committee 
of  a  club,  acting  under  its  rules,  is  bound  to  act  according 
to  the  ordinary  principles  of  justice,  and  cannot  convict 
a  man  of  a  grave  offence,  warranting  his  expulsion,  with- 
out fair,  adequate,  and  sufficient  notice,  and  an  opportunity 
of  meeting  the  accusations  brought  against  him  ;  he  should 
be  given  an  opportunity  of  either  defending  himself  or  pal- 
liating his  conduct. 

The  question  also  came  up  in  New  Jersey,  in  the  case 
Sibley  vs.  Carteret  Club  of  Elizabeth.^  In  that  case  the  club 
Avas  incorporated,  and  possessed  power,  in  virtue  of  its  char- 
ter, to  make  regulations  and  by-laws  for  the  admission,  sus- 
pension, and  expulsion  of  members.  Under  one  of  the 
sections  of  the  constitution  it  was  provided  that,  if  a  member 
remained  in  default  of  his  indebtedness  after  fifteen  days 
of  posting,  he  should  forfeit  his  membership  in  the  club,  etc. 

*  Where  a  two-thirds  vote  of  a  eighteen  members,  of  whom  four- 
committee  consisting  of  twenty-  teen  voted  for  the  expulsion,  the 
four  members  is  expressly  required  other  four  being  opposed  to  it,  it 
to  expel,  only  an  affirmative  vote  of  was  held  that  the  expulsion  was 
two  thirds  of  the  full  committee  irregular,  as  sixteen  of  the  members 
will  suffice,  and  therefore,  when  at  should  have  voted  therefor.  Lou- 
the  time  of  the  expulsion  proceed-  bat  vs.  Le  Roy,  40  Hun,  546. 
ings  the  committee  had  become  re-  ^41  L.  T.  335;  s.  c.  L.  R.  11  Ch. 
duced  to  twenty  members,  of  whom  Div.  353;  49  L.  J.  Ch.  11. 
there  were  present  at  the  meeting        '  40  X.  J.  L.  Rep.  295. 


Snspension  and  Expulsion.  103 

The  Board  of  Managere.  upon  failure  of  the  relator  to  pay 
after  posting,  resolved  that  he  ceased  to  be  a  member ; 
whereupon  the  relator  sued  out  a  writ  of  mandamus,  com- 
manding them  to  cause  his  name  to  be  replaced  upon  the 
roll  of  members.  The  writ  was  granted,  the  court  holding 
that  there  could  be  no  forfeiture  by  a  mere  failure  to  pay 
dues,  unless  there  was  a  determination  of  that  fact  by  the 
Board  of  Managers,  upon  notice  to  the  member  charged  ; 
that  the  right  of  membership  in  a  club  is  one  which  the 
courts  will  protect ;  and  that  an  irregular  removal  \vill 
warrant  the  use  of  the  writ  of  mandamus  to  effect  a  resto- 
ration of  the  expelled  member  to  his  rights.^ 

And  a  contract  made  between  a  Broker  and  his  Client, 
that  if  the  former  Avould  refuse  to  appear  before  the  Ar- 
bitration Committee  and  suffer  suspension,  the  latter  would 
reimburse  him  for  all  losses  incident  to  giving  up  his  busi- 
ness, is  good,  and  damages  may  be  recovered  for  its  breach.^ 

A  club  cannot  recover  dues  from  a  member  during  his 
suspension  fi'om  the  club,  unless  the  by-laws  to  which  the 
member  has  subscribed  contain  an  express  or  implied  con- 
tract to  pay  dues  during  suspension.^  And  it  seems  that 
where  the  by-laws  of  a  club  provide  that  a  member  may  be 
expelled  for  not  paying  his  dues  or  indebtedness,  the  ex- 
pulsion of  the  member  is  an  election  as  to  remedies,  and, 

'  10  N.  J.  L.  Rep.  29.5.     In  N.  Y.  decreeing  a  forfeiture  of  the  risht  of 

Protective     -■Vssocialifjii      v.s.     Mc-  ineinbers  in  property  of  a  local  as- 

Grath  (23  N.  Y.  St.  Rep.  209),  a  «embly  without  judicial  proccs.s  was 

by-law  of  an  incorporated  as.socia-  held  void.     To  sanu-  «'fi"cct  i.s  .\ustin 

tion  was  held  to  be  void  because  it  v.s.  Searing,  IG  N.  Y.  112. 

provided  that  on  the  expulsion  of  a  '  White  vs.  Ba.\ter,  71  X.  Y.  254, 

IfK-al  afl.s<.'mbly,  all  of  its  members  afT'n  9  J.  &  S.  (.\.  Y.  .Su|H>rior  Ct. 

should   be   dwnied   to   have   voluii-  Rep.)  3.^. 

tarily  withdrawn,  and  in  Wicks  vs.  '  The  Carteret  Club  vs.  Florence, 

Monihan   (51   Hun,  Oil),  a  l.v-l.w  :<  V   ,1    I,   J,mr.  (ISSO)  208. 


104  Stock-brokers  and  Stock  Kxchaiiffcs. 

after  expulsion  takes  place,  action  will  only  lie  wiiere  he  has 
received  some  consideration  after  his  suspension  or  expul- 
sion.' 

But  before  a  member  of  a  coi'poration  or  an  unincorpo- 
rated association  can  appeal  to  the  courts,  it  must  appear 
that  he  has  exhausted  all  of  the  remedies  provided  for  by 
the  constitution  and  Ijy-laws  of  the  association. 

The  question  arose  in  White  vs.  Brownell,^  as  to  an  unin- 
corporated association,  viz..  The  Kew  York  Stock  Exchange, 
and  the  court  held  that,  before  it  would  examine  into  any 
proceedings  of  the  committee  of  the  Stock  Exchange,  it 
must  ajipear  that  the  plaintiff  had  exhausted  all  of  the 
remedies  provided  for  in  the  constitution  and  by-laws,  the 
court  saying  :  "  The  by-law  having  provided  a  mode  for  re- 
viewing and  correcting  any  error  or  injustice  on  the  part  of 
the  committee  on  membership,  in  reporting  to  the  president 
that  the  plaintiff  was  in  default  he  was  bound  to  avail  him- 
self of  the  remedy  provided  by  the  constitution  and  by-laws 
of  the  body  of  which  he  had  'become  a  member,  before  he 
can  ask  a  court  of  equit}''  to  investigate  a  proceeding  not 
necessarily  final  in  the  body  itself,  but  which  was  there 
subject  to  review,  and  might  be  annulled  by  the  action  of  a 
committee  expressly  clothed  with  authority  to  investigate 
it  (Carlen  vs.  Drury,  1  Yesey  ct  B.  154)."^ 

*  The  Carteret  Club  vs.  Florence,  exhausted  his  remedies  in  the  asso- 
3  N.  J.  L.  J.  208.  ciation,  and  his  appeal  to  the  courts 

*  4  Abb.  Pr.  (n.  s.)  162.  was    upheld.     Gebhard     vs.     New 
'Id.  190;  Lafond  vs.  Deems,  81    York   Club,    21    Abb.    N.    C.    248; 

N.  Y.  507;  see  also  Soc.  for  Visita-  Baum  vs.  N.  Y.  Cotton  Exchange, 
tion  of  Sick  vs,  Commonw.  ex  rel.  21  Abb.  X.  C.  253;  Lewis  vs.  Wilson, 
Meyer,  52  Pa.  St.  125;  Strempel  vs.  2  X.  Y.  Supp.  806,  aff'd  in  121  X.  Y. 
Rubins,  21  X.  Y.  St.  Rep.  483.  In  284;  Loubat  vs.  Le  Roy,  40  Hun, 
Olen,-  vs.  Brown,  51  How.  Pr.  (X.  549. 
Y.)  92,  it  appeared  that  plaintiff  had 


Suspension  and  Expulsion.  105 

He  is  not,  liowevor,  obliged  to  follow  the  possible  relief 
under  a  by-law  which  provides,  not  for  an  appeal  from  the 
trial  body,  but  for  a  rehearing  by  that  body  itself.  The 
pi'obability  in  that  case,  of  favorable  reconsideration,  is  so 
slight,  that  the  court  will  not  compel  a  member  to  seek  it 
before  applying  to  the  courts.^ 

And  if  he  has  been  unlawfully  expelled,  it  has  been  held 
that  he  is  not  obliged,  before  resorting  to  mandamus,  to  ex- 
haust the  means  for  reinstatement  provided  by  a  by-law 
authorizing  the  society  to  reinstate  one  expelled,  by  a  two- 
thirds  majority  of  all  members  })resent,  after  having  paid 
all  dues  and  fines,  and  an  extra  fine  of  fifty  dollars,  and 
after  having  passed  the  examination  required  for  original 
membership,  as  the  by-law  related  to  cases  of  lawful  ex- 
pulsion, and  where  the  appeal  was  to  the  discretionary 
power  of  the  society.^ 

But  the  courts  will  not  review  and  set  aside  proceedings 
of  a  society,  taken  under  the  authority  of  its  articles  of  as- 
sociation assented  to  by  its  members,  for  the  expulsion  of  a 
member  upon  notice  of  charges  presented,  and  a  hearing  ac- 
cording to  the  by-laws,  either  because  the  charges  were  in- 
sufficient or  the  proceedings  irregular,  intless  injustice  has 
been  done,  which  the  party  charged,  tried,  and  expelled 
c<juld  not  have  objected  to  in  the  society  or  committee 
meeting. 

Proceedings  to  expel  a  member  under  charges  presented, 
notice  given,  and  a  hearing  alfordt'd,  in  conformity  with 
articles  of  association  agre<-<l  to  by  all  the  mcmburs,  are  to 
be  considered  without  t(jo  nmch  regard  to  any  teclmicali- 


'  Louhat    VH.    L«'    Koy,    tO   Hun,        '  People  vh.  Musiriil  Mutuiil  Pro- 
MG  tc-ctivc  Union,  US  N.  Y.  101 


106  Stock-brokors  and  Stock  Exchanges. 

ties.  Substantial  justice  is  to  be  followed  rather  than 
form.' 

So,  where  a  coininittee  of  a  club  have  power  to  expel 
any  member  whose  conduct  is,  in  their  opinion,  injurious  to 
the  interests  of  the  club,  and  they  exercise  this  power,  all 
that  is  required  is  that  the  committee  should  form  their 
opinion  in  a  hona  fde  way,  and  the  question  whether  their 
opinion  is  just  or  unjust  is  immaterial.  The  court  will  not 
interfere  with  the  authority  of  the  committee  unless  it  ap- 
pear that  their  decision  has  been  arrived  at  dishonestly,  or 
through  caprice  or  improper  motives."^  But  if  the  managers 
of  a  corporation  exceed  their  authority,  and  their  decision 
therefore  cannot  be  enforced,  a  payment  made  in  pui-suance 
of  such  decision,  cannot  be  recovered.  Accordingly,  when 
a  by-law  of  the  New  York  Coffee  Exchange  provided  for  a 
member's  suspension  on  his  insolvency,  and  the  managers 
proceeded  to  settle  a  dispute  between  members  by  declaring 
that  one  of  them,  who  was  solvent,  was  in  default  on  his 
contracts,  if  such  solvent  member  makes  a  payment  to  the 
other,  under  the  ruling  of  the  managers,  he  does  not  do  so 
under  duress,  as  the  decision  could  not  be  enforced  by  his 
suspension,  and  he  cannot  recover  back  the  money  so  paid.^ 

In  respect  to  the  form  of  the  remedy  which  a  member  of 
one  of  these  associations  should  adopt  to  prevent  an  inter- 

'  People  ex  rel.  Johnson  vs.  N.  Y.  ter,  5  Eq.  L.  R.  63-66;  Lj^ttleton  vs. 

Produce  Exchange,  149  N.  Y.  401,  Blackburn,  33  L.T.  Reps.  641.    But 

at  p.   413;   Albers  vs.   Merchants'  see    Evans    vs.    Phila.    Club,     14 

Exchange  of  St.  Louis,  39  Mo.  App.  Wright  (Pa.),  107.     The  jurors  pro- 

583,  at  p.  587;  State  vs.  Cincinnati  vidcd  by  the  organic  law  are  not  to 

Chamber  of  Commerce,    4  Ohio  N.  be  lightly  set  aside.     Gebhard  vs. 

P.  244;  People  vs.  The  St.  George's  New  York  Club,  21  Abb.  N.  C.  248, 

Soc.  of  Detroit,  28  Mich.  261.  at  p.  251. 

'  Gardner  vs.  Fremantle,  19  W.  R.        ^Sawyer  vs.   Gruner,    17   N.   Y. 

256;  Hopkinson  vs.  Marquis  of  Exe-  Supp.  465 


Suspension  and  Expulsion.  107 

ference  with  his  membership  or  with  his  rights  in  the  body, 
the  question  seems  to  have  been  generally  raised  by  injunc- 
tion. In  the  case  of  Leech  vs.  Harris/  where  the  plaintiff 
had  prayed  for  an  injunction  to  restrain  the  Board  of 
Brokers  from  acting  on  a  report  of  a  committee  b\'  Avhich  he 
"would  be  expelled,  the  defendants  contended  that  the  plain- 
tiff's action  was  premature,  and  "  that  the  board  must  first 
decide  whether  the  case  was  within  its  jurisdiction  before 
a  court  can  interfere."  The  court,  upon  this  point,  said : 
"  But  Avhether  this  be  so  or  not,  equity  prevents  mischief. 
It  does  not  wait  until  it  is  consummated.  It  does  not  even 
measure  the  paces  by  which  it  advances.  It  meets  it  at  the 
threshold,  and  seeks  to  prevent  a  meditated  wrong  more 
often  than  to  redress  an  injury  already  done.  Courts  of 
equity  constantly  decline  to  lay  down  any  rule  which  shall 
limit  their  power  and  discretion  as  to  the  particular  cases 
in  which  special  injunctions  shall  be  granted  or  withheld 
(2  Story's  Eq.  Juris.  §§  862,  959  b)."  - 


•  2  Brews.  (Pa.)  571.  junction  was  denied  on  the  merits, 

*  To  same  effect,  Powell  vs.  Ab-  but  not  on  the  ground  that  the  rem- 
bott,  9  Week.  Notes  of  Ca-s.  231.  edy  invoked  was  improper;  Sonne- 
Lowry  vs.  Reed,  3  Brews.  (Pa.)  452.  born  vs.  Lavarello,  2  Hun,  201; 
An  injunction  jjenderUe  lite  restrain-  Rorke  vs.  Rus-scil,  2  Lans.  (N.  Y.) 
ing  the  E-xchanRC  from  iLssertinji;  a  244;  Sewell  vs.  Ives,  N.  Y.  Daily 
resolution  of  expulsion  ajiain.st  the  Ifrg.  Feb.  11,  1879;  Lewis  vs.  Wilson 
cxpclh'd  member,  w:is  granted  in  121  N.  Y.  2S4;  Moxey's  Ai)p.,  9 
HutchiiLSon  vs.  Lawrence,  ()7  How.  Week.  Notes  of  Cas.  440,  anirmins 
Pr.  38.  But  see,  in  this  connection,  s.  c.  nub  nnm.  Moxey  vs.  Phila.  Stock 
Rorke  vs.  Ru.s.sell,  2  Lans.  (N.  Y.)  Exchange,  37  Leg.  Int.  S2,  and  in 
244.  See  also,  as  to  general  power  Baum  vs.  N.  Y.  Cotton  Exchange, 
of  court  to  interfere  I)y  injunction  in  21  .\l»l).  N.  C.  253,  an  injunction 
ca-ses  of  unincorporate<l  a.sso(iatioiis  against  the  defendant,  a  corporal  imi, 
like  clubs,  Joyce  on  Injunctions,  Wiis  deiii«'d  on  the  merits.  Sec  al.so 
74H,  751;  Heath  vs.  Prcst.  of  the  ('amion  vs.  Toronto  Stock  Exchange 
(jold  Exchange,  7  .\b.  I'r.  (n.  k.)  5  Out.  App.  2(iS;  Kuchnennmdt  vs. 
251,      In  the  following  cjmes  the  in-  Smith,  2  N.  Y.  Supp.  025      But  in 


108  Stock-ln*()kers  and  Stock  Exchanges. 

And  in  ;i  recent  case  in  Wisconsin  the  Milwaukee  City 
Chamber  of  Coninierce  was  temporarily  enjoined  from  sus- 
pending or  expelling  plaintiffs,  on  the  ground  that  their 
comj)laint  stated  good  grounds  of  relief,  and  as  there  was 
a  probability  that  cora})lainants  were  entitled  to  a  perma- 
nent injunction,  they  were  entitled  as  a  matter  of  right  to 
a  temporary  injunction,  as,  if  the  Chamber  of  Commerce 
were  allowed  to  do  the  mischief  threatened,  it  was  reason- 
ably certain  that  the  object  of  the  suit  would  be  in  a  great 

Massachusetts  it  has  been  hold  that  in  the  case  of  a  certificate  of  mem- 

where  the  charter  of  a  corporation  bership  the  vahie  of  the  ri^ht  of 

gives  it  power  to  suspend  or  expel  wliich  it  is  evidence  of  title,  without 

members,  there  was  conferred  upon  interest.     Olds  vs.  Chicasro  Bd.  of 

the  corporation  a  special  and  limited  Trade,  33  111.  App.  445.     Or  may 

judicial  power,  and  that  a  court,  of  recover  damages  for  any  Avrong  to 

chancery  could  not  interfere  with  its  him  consequent  upon  the  wronj^ul 

action  in  the  contemplated  expulsion  expulsion.     Burt  vs.  Grand  Lodge, 

of   a  member.     Grigg  vs.  Medical  66  Mich.  87.     A  mandamus  against 

Society,  111  Mass.  185.  an  unincorporated  as.sociation  was 

In  Fritz  vs.  Muck,  62  How.  Pr.  granted  in  the  case  of  Otto  vs. 
69,  Mer-s\'in,  J.,  said:  "Cases  are  Tailore' Union,  75  Cal.  308. 
cited  showing  that  the  proper  rem-  In  Illinois  it  has  been  held  that  in- 
edy  is  by  mandamus  where  parties  junction  is  a  preventi\'e,  and  not  an 
seek  restoration  to  the  membership  affirmative,  remedy  and,  therefore, 
of  a  corporation,  but  this  does  not,  I  a  court  of  chancery  cannot  by  in- 
think,  apply  to  an  unincorporated  junction  restore  an  improperly  ex- 
association  (see  White  vs.  Brownell,  pelled  member  to  membership. 
2  Daly,  329,  358).  Here  if  the  party  Fisher  vs.  Bd.  of  Trade,  SO  111.  85; 
has  any  remedy  it  is  by  suit,"  and  Baxter  vs.  Bd.  of  Trade,  S3  111.  146. 
he  held  that  plaintiff  was  entitled  to  Nor  can  injunction  issue  to  restrain 
a  judgment  declaring  his  expulsion  a  threatened  expulsion.  Sturges 
invalid  and  restoring  him  to  all  his  vs.  Board  of  Trade,  Sfi  111.  441,  or 
rights  as  a  member.  where  the   expulsion   has   been  le- 

The  expelled  member  may,  after  gaily  effected.     Pitcher  vs.  Board  of 

the    expulsion    has    been    declared  Trade,  121  111.  412.     And  see  Hex 

void,  recover  the  value  of  his  seat,  vs.  Richardson,  1  Burr.  539;  Mur- 

in  an  action  of  conversion,  if  the  dock  vs.  Phillips  Academy,  12  Pick. 

Exchange  has  sold  it  and  retained  (Mass.)  244;  Beach  on  Injimctions, 

the  proceeds.     Sewell  vs.  Ives,  61  p.    1362;   Spelling   on   Injunctions. 

How.  Pr.  54;  Cecil  vs.  Simmons,  X.  p.  633. 
Y.  Daibj  Reg.  March  17,  1S86.     Or 


Suspeusiou  aud  Expulsion.  109 

measure  defeated.  A  judgment  in  their  favor,  if  the  status 
quo  was  not  preserved  during  the  litigation,  would  leave 
them  irreparably  injured,  while,  if  it  was  preserved,  no 
damage  of  a  serious  character  could  accrue  to  the  Cham- 
ber if  it  finally  prevailed,  certainly  none  that  could  not  be 
adequately  guarded  against  by  security.* 

In  a  similar  case  in  Xew  York,  where  a  member  of  the 
Xew  York  Produce  Exchange  souiiht  to  restrain  the  Ex- 
change  from  investigating  charges  brought  against  him 
by  another  member,  an  order  granting  a  temporary  injunc- 
tion was  dissolved,  as  a  majority  of  the  court  was  in  favor 
of  reversal  of  the  order  granting  it.  Three  of  the  judges 
were  in  favor  of  reversal  on  the  ground  that  the  board 
had  jurisdiction  of  the  complaint,  whilst  the  three  dissent- 
ing judges  held  that  the  board  had  no  jurisdiction.  An- 
drew, J.,  concurred  for  reversal  on  the  ground  that,  upon 
the  facts,  the  remedy  by  injunction  would  not  lie,  as  no  vio- 
lation of  plaintiff's  rights  had  happened,  or  might  ever  hap- 
pen, and  no  injury  thereto  was  threatened  in  such  a  sense 
as  justified  a  preventive  remedy.'-* 

But  when  a  member  has  been  expelled  from  a  corpora- 
tion for  no  legal  cause,  mandamus  lies  against  the  corpo- 
ration to  compel  it  to  restore  him  to  membership.^ 

'  liartli'tt  vs.  Harthtt,  03  N.  W.  L.  J.  208;  Commonw.  vs.  The  Ger- 

(Wis.)  473;   See  Kolff  vs.  E.\..  48  nmnSoc,  15  Pa.  St.  2ol;  People  vs. 

Minn.  215.  Mechanics'  Aid  Soc.  22  Mich.  86; 

*  Huret  vs.   New  York   Produce  People  vs.   Med.  Soc.  of  Erie,  24 

Exchange,  100  N.  Y.  005;  Grc-cr  v.  Barb.  (X.  Y.)  570;  People  vs.  New 

Stoller,  77  F.  1.  York  Cotton  Ex.,  8  Hun,  216;  Peo- 

»  Hijih,   Extra.   LcRal    Hem.   (2d  pie  vs.  N.  Y.  Ben.  Soc,  3  Hun,  361 ; 

ed.)   i   201;  State  vs.  The  Georgia  People  vs.  Am.  Inst.,  44  How.  Pr. 

Med.  Sw.,38  Ga.608,  where  there  is  4(>H;  People  vs.  N.  Y.  Prod.  Ex.,  149 

a  review  of  authorities;  Evans  vs.  N.  Y.  401;  People  vs.  Soeiely,  24 

Phila.   f'luh,   .V)   Pa    St.    107;  The  How.  Pr.  216;  People  vs.  Institute, 

Carteret  Club  VH.  Florence,  3  N.  J.  2    N.    Y.    Leg.    Ub.    170;    Nelson 


no 


stock-brokers  and  Stock  Exchanges. 


Mr,  Iliirh  savs  :  •  "  The  use  of  tlie  writ  of  mandamus  as 
a  remedy  for  the  wrongful  amotion  of  a  C(^rporator,  and  to 
restore  him  to  the  enjoyment  of  the  franchise,  of  which  he 
has  been  wrongfully  deprived,  is  of  very  ancient  origin,  and 
may  be  distinctly  traced  to  a  period  as  early  as  the  reign  of 
Edward  the  Second.  It  was  also  used  for  the  same  purpose 
in  the  time  of  Henry  the  Sixth  ;  and  in  the  reign  of  Eliza- 
beth it  was  treated  as  a  well-established  jurisdiction." 


vs.  Board  of  Trade,  58  111.  App. 
414. 

In  Albers  vs.  Mer.  Ex.,  39  Mo. 
App.  583,  under  the  statutes  of 
Missouri,  an  injunction  against  a 
corporation  was  granted  restraining 
the  enforcement  of  a  resolution  of 
suspension.  The  remedy  bj^  in- 
junction has  been  also  applied  in 
Pennsylvania  and  Wisconsin.  Kerr 
vs.  Trego,  47  Pa.  St.  295;  Roshi's 
Appeal,  69  Pa.  St.  467;  Lutheran 
Church  vs.  Gri-stgau,  34  Wis.  336. 
Mandamus  cannot  issue  to  restore 
one  to  membership  in  an  unincor- 
porated Exchange.  Weidenfeld  vs. 
Keppler,  84  A.  D.  235;  68  N.  E. 
1125.  The  proper  proceeding  in 
such  case  is  by  equitable  action. 
Fritz  vs.  Muck,  62  How.  Pr.  69. 

It  seems  that  where  a  member  is 
expelled  and  seeks  to  review  the  act 
of  the  Exchange  in  expelling  him  in 
the  courts  on  the  ground  that  it  was 
unauthorized  and  illegal,  the  court 
will  permit  him  by  order  to  inspect 
and  copy  the  record  and  proceed- 
ings under  which  he  was  expelled, 
and  to  examine  the  President  or 
other  officers  upon  the  subject  to 


enable  him  to  prepare  his  com- 
plaint. Hutchinson  vs.  Lawrence, 
N.  Y.  Supreme  Ct.  Chambers,  N.  Y. 
Daily  Reg.  Feb.  20,  1883,  aflf'd 
by  Gen.  Term,  3  N.  Y.  Civ.  Proc. 
Rep.  98.  And  as  to  what  questions 
the  President  of  the  Exchange  can 
be  compelled  to  answer  upon  such 
examination,  see  elaborate  opinion 
of  Lawrence,  J.,  in  Hutchinson  vs. 
Lawrence,  N.  Y.  Daily  Reg.  April  3, 
1883,  N.Y.  Supreme  Ct.  But  where 
a  member  of  the  New  York  Stock 
Exchange  is  expelled  for  "obvious 
fraud"  under  its  rules  and  constitu- 
tion, in  an  action  by  such  member 
against  the  E.xchange,  the  plaintiff 
is  not  entitled  to  a  bill  of  particu- 
lars of  the  fraud.  Solomon  vs. 
McKay,  17  N.  Y.  W.  Dig.  229.  See 
also  State  vs.  Chamber  of  Comm., 
20  Wis.  68;  State  vs.  Chamber 
of  Comm.,  47  Wis.  670;  Delacy 
vs.  Ncuse  River  Xav.  Co.,  1 
Hawk.  (X.  C.)  274;  Franklin  Bene- 
ficial Assoc,  vs.  The  Commonw., 
10  Pa.  St.  357  ;  State  vs.  Un. 
Merchant's  Ex.,  2  Mo.  App.  96; 
Savannah  Cotton  Ex.  vs.  State,  54 
Ga.  668. 


•Extra.     Legal   Rem.    (2d    ed.)    mus,  §  166;  Albers  vs.  Exchange,  39 
§  291,  and  see  Merrill  on  Manda-   Mo.  App.  583,  at  p.  588. 


Suspeusiou  aud  Expulsion.  Ill 

The  following:  are  some  of  the  ijrounds  held  sufficient  for 
invoking  the  extraoi'dinary  aid  of  mandamus  :  AVant  of  no- 
tice of  proceedings  taken  for  the  removal  of  a  member,  and 
want  of  opportunity  of  being  heard  in  his  defence  ;^  where 
no  sufficient  cause  has  been  shown  for  the  removal,  and 
■where  the  proceedings  have  been  conducted  with  irregu- 
larity," and  in  a  spirit  of  malice  ;•'  and  where  the  member 
has  beeli  illegally  removed  for  violating  a  rule  of  the  cor- 
poration which  is  in  conflict  with  public  policy  and  the  law 
of  the  land  ;^  or  where  he  has  been  expelled  under  an  un- 
reasonable by-law  ;  ^  or  where  the  act  of  the  member  is  not 
a  violation  of  the  charter  and  by-laws.^  "Where,  however, 
a  corporator  has  been  regularly  tried  in  accordance  with 
the  rules  of  the  association,  which  he  has  assented  to  by 
becoming  a  corporator,  and  has  been  expelled  in  due  form, 
the  merits  of  the  expulsion  will  not  be  examined  in  pro- 
ceedings for  a  mandanms." 

So  it  would  seem  that  a  mere  restriction  upon  the  mode 

'  Delacy   vs.    Neuse   River   Xav.  been     denied,     Savannah     Cotton 

Co.  (supra);  People  v.s.  St.  Francis-  E.\.  vs.  State,  54  Ga.  668. 

cu-s  Soc,  24  How.  Pr.  216;  People  'People  ex  rel.  Elliott  vs.  New 

vs.  Benevolent   Soc.,  3  Hun,    361;  York  Cotton  Exchani^e,  8  Hun,  216. 

State  vs.  Chamber  of  Commerce,  47  'High,   Extra    Legal    Hem.   (2d 

Wis.  670.  ed)  §  292,  and  cases  cited;  Merrill 

'People    vs.    New   York  Cotton  on   Mandamus,    §166;  Society  vs. 

Exchan>;e,  8  Hun,  216;  People  vs.  The   Commonw.    52    Pa.    St.    125. 

Mu.sical  Union,  118  N.  Y.  101.  Nor  will  mandamus  be  issued  be- 

*  State  vs.  The  Georgia  Med.  Soc.  cau.se  of  mere  irregularity  in  the 
(supra).  expulsion  proceedings,  if  it  appears 

*  People  vs.  Med.  Soc.  of  Erie  that  proj)cr  grouml.s  for  tlic  cxpul- 
(supra).  sion  exist  and    the   mcml)cr  may, 

*  Commonw.  vs.  St.  Pat.  Benev.  after  the  restoration  by  virtue  of  the 
Soc.,  2  Binn.  (Pa.)  442;  State  vs.  mandanms,  again  be  expelled  by 
L'nion  Men.  Ex.,  2  Mo.  .\pp.  96.  proceedings  in  due  form.  Merrill 
And  where  an  appeal  from  the  com-  on  Mandamus,  5  170,  and  cases 
mitl^'c's  decision,  on  ground  of  ju-  tin  re  cited;  see  also  Black  and 
ri'tdiction,  rcwrving  the  merits,  hiw  White  Smiths'  Soc.   vs.   Vandyke, 


112  Stock-brokers  antl  Stock  Excbauges. 

in  Avhich  the  member  may  exercise  bis  corporate  right, 
and  not  an  actual  exchjsion  from  the  corporation,  alTords 
no  ground  for  a  mandamus.^  And  mere  infonnaliLy  in  the 
proceedings  for  the  removal  of  a  member,  especially  where 
they  are  carried  by  his  own  action,  will  not  justify  inter- 
ference by  mandamus,  where  there  was  just  ground  for  his 
removal,  and  the  member  has  been  acting  in  hostility  to 
the  corporation,  and  threatens  to  continue  his  opposition.^ 

The  return  must  set  forth  distinctly  all  the  facts  essen- 
tial to  the  conviction,  both  as  to  the  cause  of  disfranchise- 
ment and  the  mode  of  proceeding.^ 

An  action  for  damages  may  also  be  maintained  by  a 
member  who  has  been  unlawfully  expelled  '  or  indefinitely 
suspended,^  or  if  he  is  denied  the  privileges  of  the  Exchange 
and  his  means  of  livelihood  as  a  Broker  without  actual  sus- 
pension or  expulsion.^  And  the  bringing  of  such  an  action 
is  a  waiver  of  the  right  to  mandamus.' 

2  Whart.  309;  Sperry's  Appeal,  116  ^Cannon  vs.  Corn   Ex.,  5   Ont. 

Pa.  St.   391;  also,  Commonw.   vs.  App.  268;  Burt  vs.  Grand  Lodge, 

Pike  Benev.  Soc,  8  W.  &  S.  247.  66  Mich.  87. 

Mandamus   to    restore    corporator,  *  Blumenthal       vs.       Cincinnati 

Franklin  Beneficial  Assoc,  vs.  The  Chamber    of    Commerce,    8    Ohio 

Commonw.    (supra).  Dccis.  Rep.  410. 

'High,  Extra.  Legal    Rem.   (2d  "Temple  vs.    Stock   Ex.,  8  Ont. 

ed.)   §  300;  Crocker  vs.  Old  South  (Can.)  705. 

Soc,  106  Mass.  489.  '  State  vs.  Slavonska,  28  Ohio  St. 

^  High,    Extra    Legal    Rem.   (2d  665.     As  to  when  not  even  nominal 

ed.)    §  301 ;    State    vs.    Lusitanian  damages  will  be  given,  see  Albers  vs. 

Portuguese  Soc,  15  La.  An.  73;  King  Ex.,  138  Mo.  140.     See  also  Lurman 

vs.  Griffiths,  5  Barn.  &  Aid.  731.  vs.  Jarvie,  81  N.  Y.  Supp.  468. 

'  Society  vs.  Commonw.,  52  Pa. 
St.  125,  and  cases  there  cited. 


Lien  on  Seats.  113 

(c.)  Rule  Giving  members  of  Exchange  Lien  on  Proceeds  of 
Defaulting  Members"  ^^  Seats,""  etc.,  in  Preference  to  other 
Creditors,  not  Illegal. 

In  the  case  of  Hyde  vs.  "Woods ^  it  was  held  that  a  provi- 
sion in  the  constitution  of  a  Stock  and  Exchange  Board  (a  vol- 
untary unincorporated  society,  whose  members  are  elected 
by  ballot  and  are  limited  in  number) — that  a  member,  upon 
failing  to  perform  his  contracts  or  becoming  insolvent,  may 
assign  his  seat  to  be  sold,  and  that  the  proceeds  shall,  to  the 
exclusion  of  his  outside  creditors,  be  first  applied  to  the  bene- 
fit of  the  members  to  whom  he  is  indebted — is  neither  con- 
trary to  public  policy  nor  in  violation  of  the  Bankrupt  Act, 
The  reasoning  of  the  court  was  that  the  San  Francisco  Stock 
and  Exchange  Board  was  a  voluntary  association,  and  the 
members  had  a  right  to  associate  themselves  upon  such  terms 
as  they  saw  fit  to  prescribe,  so  long  as  there  was  nothing  im- 
moral, orcontrai-y  to  public  policv,  or  in  contravention  of  the 
law  of  the  land  in  the  terms  and  conditions  adopted.  No 
man  was  under  any  obligation  to  become  a  member  unless  he 
saw  fit  to  do  so ;  and  when  he  did,  and  subscribed  to  the  con- 
stitution and  b^'-laws,  thereby  accepting  and  assenting  to  the 
conditions  j)rescribed,  he  acquired  just  such  rights,  with  such 
limitations,  and  no  others,  as  the  articles  of  the  association 
provi<led  for.  The  decision  was  affirmed  by  the  Supreme 
Court  of  tlie  T'nited  States,*  where  the  court,  through  ^Ir. 
Justice  Millcj-,  said  :  "  Then;  is  no  reason  why  the  Stock 
Board  should  not  make  membership  subject  to  the  rule  in 

'  *.\\   V .  S.  (4  Otto)  523,  aff'K  2  waa  not  property  such  iis  coiilil  l)e 

.Sawy.    Go.'}.     Sec   this   oiwe   cliHtiii-  Kold    to    pay    the    holder's    debts. 

^iHhc<l  ill  Han  lay  vs.  Smith,   107  Hut  H<'e  Weaver  vs.  Fisher,  110  111. 

111.  ',i'>'t,  in  which  it  was  held  that  a  1  1(>. 

Chica(;o  lioard  of  Tnule  certificate  '  'Jl  U.  S.  .')2.'J. 

8 


114  Stock-brokers  aud  Stock  Exchanges. 

question,  unless  it  be  that  it  is  a  violation  of  some  statute  or 
of  some  principle  of  public  policy.  It  does  not  violate  the 
provision  of  the  Banki-upt  Law  against  preference  of  credit- 
ors, for  such  a  preference  is  oidy  void  when  made  within  four 
months  previous  to  the  commencement  of  the  bankrupt  pro- 
ceedings. Neither  the  Bankrupt  Law  nor  any  principle  of 
morals  is  violated  by  this  provision,  so  far  as  we  can  see. 
A  seat  in  this  board  is  not  a  matter  of  absolute  purchase. 
Though  we  have  said  it  is  propert}^  it  is  encumbered  with 
conditions  when  purchased,  without  which  it  could  not  be  ob- 
tained. It  never  was  free  from  the  conditions  of  Article  XY., 
neither  when  Fenn  bought  nor  at  any  time  before  or  since. 
That  rule  entered  into  and  became  an  incident  of  the  prop- 
erty when  it  was  created,  and  reuiainsapartof  it,  into  whose 
hands  soever  it  may  come.  As  the  creators  of  this  right — 
this  property — took  nothing  from  any  man's  creditors  when 
they  created  it,  no  wrong  was  done  to  any  creditor  by  the 
imposition  of  this  condition." 

In  Xew  York  it  has  also  been  decided  that  a  person 
becoming  a  member,  assents  to  the  appropriation  of  the 
proceeds  of  his  seat,  to  the  payment  of  debts  on  the  Ex- 
change.' 

'  Weston  vs.  Ives,  97  N.  Y.  222;  admission  and  the  proceeds  first 
Bernheim  vs.  Keppler,  34  Misc.  321;  applied  to  his  debts  in  the  Ex- 
Stonebridge  vs.  Smith,  55  N.  Y.  change.  The  Governing  Commit- 
Super.  Ct.  294;  People  ex  rcl.  Krohn  tee  may  extend  the  time  for  scttle- 
vs.  Miller,  39  Hun,  557;  Hanscom  ment  for  periods  of  not  more  than 
vs.  Hendricks,  52  Hun,  80.  See  one  year,  and  it  has  been  held  that 
also  Belton  vs.  Hatch,  109  X.  Y.  when  a  member  is  svLspcndcd  the 
593.  The  constitution  of  the  New  rights  of  other  members  in  the  pro- 
York  Stock  Exchange  provides  ceeds  of  his  seat  do  not  become  fixed 
that  if  a  member  be  suspended,  immediately,  unless  the  seat  is  then 
upon  insolvency,  and  fails  to  settle  sold,  and  if  the  period  of  settlement 
within  one  year,  his  seat  shall  l)e  is  extended,  the  committee  are  to 
disposed  of  by  the  committee  on  determine  such  rights  according  to 


Lieu  ou  Seats.  115 

But  if  the  articles  of  incorporation,  rules,  or  b3'-laws  of 
a  chamber  of  commerce  do  not  ffive  the  members  a  lien  on 
the  certificate  of  membershi[)  for  debts  due  to  them,  such 
debts  become  barred  by  the  discharge  of  the  debtor  in 
bankruptcy',  and  mandamus  will  lie  to  compel  the  board 
to  transfer  the  certificate  on  its  books  to  one  to  whom 
the  trustee  in  bankruptcy  had  sold  it,  the  sole  reason  for 
the  refusal  of  the  transfer  being  the  objection  of  two  of 
the  memBers  to  the  transfer  on  the  ground  that  debts  due 
to  them  by  the  bankrupt  were  unpaid,^ 

The  case  of  Nicholson,  Assignee,  vs.  Gouch  '  was,  in  many 
respects,  very  much  like  that  of  Hyde  vs.  Woods,  the  action 
having  been  brought  to  recover  certain  property  that,  under 
the  rules  of  the  London  Exchange,  of  which  the  bankrupt  was' 
a  member,  had  been  received  and  paid  to  his  fellow-members. 
This  was  asserted  to  be  a  preference,  void  by  the  Bankrupt 
Law ;  and  the  rules  of  the  Exchange  under  which  it  was 
done  were  assailed  on  the  same  ground  taken  above.  It  is 
true  that  in  the  decision  of  the  Queen's  Bench  in  banc, 
Lord  Campbell,  the  Chief  Justice,  ruled  against  the  plaintiff, 
on  the  ground  that  the  money  in  question  arose  out  of  wager- 
ing contracts,  which,  as  they  could  not  have  been  enforced 

the  rules  existing  at  the  extended  doe-s    not    eontniveuo    the    .statute 

tirnc  and  not  a.s  they  were  at  the  forbidding  perpetuities.     lirown  vs. 

time    of    HU.spen.sion.     Haight    vs.  Mutual  Trust  Co.,  2'2  \Ve(>kly  Dig. 

Dickerman,    IS   .\.   V.   Supp.   .559.  (.\.  Y.)  3lM. 

The  constitution  of  the  San  Fran-  '  State  vs.  Clianiher  of  Com- 
cisco  .Sto<-k  Exchange  has  a  similar  mcrce,  79  N.  W.  (Minn.)  102G. 
provision  which  has  been  judicially  '  5  El.  &  Bl.  999.  In  Clarkson  vs. 
appUed.  Horke  vs.  San  Francisco  Toronto  Stock  Exchange,  13  On- 
Stock  Exchange  Board,  99  Cal.  190.  tario  Hep.  213,  a  by-law  giving  a 
An  agreement  to  invest  the  pur-  preference  to  claims  of  the  Ex- 
cha.He  price  of  seats  in  a  projxjsed  change  and  its  members  was  bus- 
Exchange  in  a  trust  fund  for  the  tuined. 
uccurity  of  debts  between  members, 


116  Stock-brokers  and  Stock  Exchanges. 

by  the  bankrupt,  were  therefore  not  subject  to  the  claim  of 
the  assignee ;  but  Compton,  J.,  held,  also,  that  the  money 
being:  received  and  distributed  under  the  rules  of  the  Stock 
Exchange,  by  reason  of  the  bankru})t  having  become  a 
member  subject  to  said  rules,  this  was  a  suiRcient  defence 
to  the  party  who  so  received  and  distributed  it. 

So,  in  the  State  of  Pennsylvania,  there  are  several  deci- 
sions which  uphold  the  right  and  power  of  the  Board  of 
Brokers  to  make  by-laws  by  which  members  of  the  associa- 
tion are  entitled  to  a  preference  in  the  payment  of  their 
debts  from  the  proceeds  of  the  sale  of  an  insolvent  member's 
seat  over  outside  creditors. 

In  the  case  of  Leech  vs.  Leech  ^  an  outside  creditor  sought 
to  reach  the  proceeds  of  the  sale  of  his  debtor's  seat  in  the 
Exchange  by  attachment ;  but  the  court  held  that  the  claims 
of  the  fellow-members  of  the  insolvent  should  first  be  paid  ; 
that  this  was  the  condition  upon  which  the  insolvent  be- 
came possessed  of  his  seat,  and  it  could  not  be  repudiated.^ 

In  the  case  of  Singerly  vs.  Johnson  ^  the  plaintiff's  intes- 
tate, at  the  time  of  his  death,  was  a  member  of  the  Phila- 
delphia Board  of  Brokers.  After  his  death,  his  seat  was 
sold  by  the  secretary,  under  the  provisions  of  the  constitu- 
tion, as  follows  :  "  Sec.  XII.  .  .  .  AVhen  a  member  dies,  his 
seat  may  be  sold  by  the  secretary'',  and  after  satisfying  the 
claims  of  the  members  of  the  board,  the  balance  shall  be 
paid  to  his  legal  representatives.'' 

The  plaintiff's  intestate  was  indebted  to  another  member 
of  the  board  at  the  time  of  his  death,  which  claim  was 
passed  upon  and  allowed  by  the  Arbitration  Committee,  in 

'  3  Week.  Notes  of  Cas.  542,  the  case  of  Evans  vs.  Wister,  1 
note.  Week.  Notes  of  Cas.  181. 

^  This  decision  was  confirmed  in       '  3  Week.  Notes  of  Cas.  541. 


Lieu  on  Seats.  117 

pureuance  of  the  constitution.  On  this  state  of  facts,  it  was 
held — (1)  that  the  decision  of  the  Arbitration  Committee 
was  final  and  conclusive  as  to  the  existence,  validity,  and 
amount  of  the  member's  claim,  and  that  a  court  of  law  has 
no  jurisdiction  to  go  behind  or  inquire  into  the  finding  of 
said  committee  ;  (2)  that  the  agreement  to  abide  by  the 
arbitration  clause,  etc.,  in  the  constitution,  entered  into  by 
Singerly,  or  implied  by  his  membership,  was  not  revoked 
by  his  death  ;  (3)  that  the  plaintifl",  as  the  legal  representa- 
tive of  the  decedent,  was  only  entitled  to  recover  the  bal- 
ance, if  any,  after  the  payment  of  the  member's  claim,  with 
interest ;  and  that  such  linfitation  of  his  right  was  not  af- 
fected by  the  fact  that  the  decision  of  the  Ari)itration  Com- 
mittee was  made  after  the  commencement  of  the  suit. 

This  case  was  followed  by  Thompson  vs.  Adams,^  where 
the  court  held,  that  under  the  constitution  and  by-laws  of 
the  Philadelphia  Stock  Exchange,  providing  that  a  member 
may  sell  his  seat  if  he  has  no  claims  against  him,  and  also 
providing  that,  in  case  of  death,  a  member's  seat  might  be 
sold  and  the  proceeds  paid  to  his  representatives,  after  satis- 
fying claims  of  members,  a  secret  ecpiitable  owner  of  a 
seat — one  who  had  advanced  the  money  to  the  member  to 
enable  him  to  purchase  the  same — has  no  right,  as  against 
members  of  the  board  who  ai-e  creditors  of  the  legal  ownei-, 
to  share  in  the  ])roceedsof  the  sale  of  the  seat  on  the  death 
of  the  latter.  It  was  held  that  the  constitution  and  by-laws 
hav(!  the  force  of  law  as  to  its  membci's.     The  court  said  : 

•*  The  jurisdiction  of  tlu;  courts  cannot  be  ousted  i)y  con- 
tract, but  any  person  may  covenant  oi-  .igree  that  no  light 
of  action  shall  accrue  until  ;i   thii-d  person  has  decided  on 

>  93  Pa.  St.  55. 


118  Stock-brokers  and  Stock  Exchanges. 

any  iliffereiico  that  may  arise  between  himself  and  the  other 
parly  to  the  covcTiaiit.  The  loading  case  upon  this  subject, 
and  followed  in  I'eniisylvania,  is  Scott  vs.  Avery.'"'  Upon 
appeal  the  court  said  :  ''  There  is  nothing  unlawful  or  un- 
reasonable in  this  rt'gulation."  - 

The  by-laws  may  provide  that  the  preference  shall  extend 
to  all  debts  incurred  in  tlie  course  of  business  between  the 
members,  though  they  do  not  grow  out  of  stock  transactions.' 
But  the  debt  must  have  arisen  in  dealings  on  the  Exchange 
of  the  character  specified  in  the  rules  or  by-laws.  The 
maxim  inchisio  ^mns  est exclusio  alterius  applies.' 

A  debt  due  to  a  firm  in  which  only  one  of  the  partners 
has  a  seat  in  the  Exchange,  is  entitled  to  the  same  preference 
as  if  due  to  the  partner  individually.  A  debt  to  a  firm  is  a 
debt  to  each  member  of  the  firm.^ 

*  5  House  of  Lords  Cas.  811.  "all  contracts,  debts  or  obligations 
^  See    also    Moxey's    App,    ante,    of  every  description"  (art.  13,  §6) 

p.  91,  where  the  court  afjain  held  due  to  members  are  to  have  prefer- 
that  such  a  regulation  was  not  con-  ential  payment,  the  committee  on 
trary  to  law.  claims  has  only  jurisdiction  of 
'  Sheppard  vs.  Barrett,  17  Phila.  claims  arising  from  transactions  in 
145,  where  it  was  held  that  the  rules  the  Exchange,  viz.,  those  arising  on 
included  in  the  preference  given,  stocks,  bonds,  bullion,  grain  or  cot- 
a  "friendly  loan"  which  by  the  ton  on  the  Exchange,  and  if  the 
custom  of  brokers  was  a  loan  of  committee,  in  investigating  these 
money  or  stocks  between  brokers  claims,  proceeds  according  to  the  by- 
for  business  purposes.  laws  and  the  jurisdiction  conferred 

*  Bernhcim  vs.  Keppler,  34  Misc.  upon  them,  their  findings  will  be 
321;  Cockran  vs.  Adams,  180  Pa.  sustained.  In  re  Hayes,  75  X.  Y. 
St.  289.     In  the  first  named  case  it  Supp.  312. 

was  held  that  a  claim  bj*  one  mem-  *  Shcppard  vs.  Barrett,  17  Phila. 

ber  against  the  proceeds  of  the  sale  145.     In  Cochran  vs.  Adams,  180 

of  the  seat  of  another  arising  out  of  Pa.  St.  289,  the  provision  of  the 

transactions  prior  to  the  former's  constitution  considered   had  a  spe- 

admission  to  membership  was  prop-  cial  provision  to  this  effect.   And  the 

erly  disallowed.  same  has  been  held  to  apply  in  New 

-Mthough    the    language    of    the  York,    although    the    member   had 

constitution  of  the  Exchange  is  that  made  a  prior  general  assignment. 


Lien  on  Seats.  119 

By  the  terms  of  the  constitution  and  by-laws,  the  person 
becoming  a  member  assents,  in  case  of  suspension,  to  the 
appropriation  of  the  proceeds  of  his  seat  in  a  particular  way, 
and  no  other  appropriation  can  be  made.  Even  though  the 
decision  of  the  comtnittee  making  the  distribution  as  to 
claims  is  declared  to  be  final,  it  has  no  power  beyond  that 
given  by  the  contract.  It  cannot  admit  a  claim  which  the 
constitution  by  its  terms  excludes,  and  this  is  so  whether 
the  claim  is  valid  or  not.^ 

A  Stock  Exchange  creditor  who  has  taken  the  benefit  of 
the  distribution  of  the  proceeds  of  the  seat,  or  in  England, 
of  the  other  assets  to  be  distributed  under  the  rules,  is  not 
precluded  from  afterwards  taking  ordinary  legal  proceed- 
ings, for  the  recovery  of  the  balance  due  him,  though  in 
England  he  must  give  credit  for  what  he  has  received  in  the 

In  re  Hayes,  75  N.  Y.  Supp.  321.  committee,  is  not  enough  to  sustain 

Even  although  the  constitution  of  the  granting  of  an  ad  interim  in- 

the  Xew  York  Stock  Exchange  does  junction,  restraining  the  disposition 

not  so  clearly  indicate,  proof  of  the  of  the  fund.     It  is  to  be  presumed 

usage  of  the  Exchange,  and  of  the  that  the  action  of  the  committee 

practical  construction  put  upon  the  will     be     legal.     Stoncbridge     vs. 

constitution  Ijy  the  parties  thereto.  Smith,   55   N.   Y.   Super.   Ct.   294. 

will  give  effect  to  the  constructions  See  also  Ilurst  vs.  N.  Y.  Produce 

thereof  as  stated  in  the  text.     Id.  Exchange,   100  X.  Y.  605;  s.  c.   1 

'  We-ston  vs.  Ives,  97  N.  Y.  222.  Cent.  Kep.  2G0,  in  which  it  was  held 

An  amendment  to  the  con.stitution  that  it  is  to  be  presumed  that  the 

or  by-laws,  made  after  the  member  committee  will  deal  justly  in  decid- 

had  ceased  to  be  such,  but  pending  ing  any  question  arising  under  the 

the  distribution  of  the  fund  in  the  by-laws. 

hands  of  the   Exchange,    ^f^d   ad-       The  committee  are  all  members 

mittirig   claims   to   the   preference,  of  the  Exchange,  and  they  may  have 

which  were  not  entitled  previously  an    interest    in    the    matter   before 

thereto,    would     be    iiieffectual    in  them.     Hut  tlie  mere  fact  of  having 

that  cant'.     Ibid.  such    interest    does    not    disciualify 

A  threat  bv  an  ofFicer  or  member  them  from  taking  part  in  a  di-eision, 

of  the   Exchange  to   makf  an   im-  though  the  fact  that  some  members 

prop«'r    diHtribution,    even    if    such  have  an  interest  may  put  the  other 

individual  were  a  member  of  the  members  of  the  committee  on  their 


120  Stock-brokers  and  Stock  Exchaiii^os. 

Exchanir(\'  In  Xew  York,  liowrvci'  it  lias  been  held  that 
when  a  member  of  the  Stock  Exchange  makes  a  general  as- 
signment, his  membership  is  an  asset  of  the  assigned  estate, 
subject  to  the  existing  constitutional  rights  therein  of  the 
Stock  Exchange  creditors,  and  therefore  in  the  distribution 
of  the  general  estate  by  the  assignee,  the  claims  of  the  Stock 
Exchange  creditors,  without  reference  to  the  amounts  re- 
ceived by  them  out  of  the  proceeds  of  the  sale  of  the  seat, 
should  be  allowed  as  filed,  subject  to  the  exception  that  no 
such  creditor  should  receive  any  sum,  as  dividend,  in  excess 
of  the  balance  due  him  upon  the  full  amount  of  his  original 
claim,  after  deducting  the  amount  received  by  him  from  the 
proceeds  of  the  membership.'- 

Reverting  to  the  question  of  preference,  the  law  seems 
to  be  differently  settled  in  England,^  where  a  member  of  the 
Exchange  seeks  to  prefer  his  fellow-members  to  his  outside 
creditors  by  paying  money  to  the  official  assignee  of  the 
Exchange.  In  the  case  in  question  it  appeared  that  C. 
was  a  member  of  the  Stock  Exchange,  and  became  unable 
to  meet  his  Stock  Exchange  engagements,  of  which  fact  he 
gave  notice  to  the  secretary.  In  such  a  case  the  rules  of 
the  Stock  Exchange  prescribe  the  course  to  be  followed. 
The  defaulter  ceases  to  be  a  member  of  the  body ;  two 
members  of  the  Exchange  act  as  official  assignees  of  the 
defaulter  ;  a  meeting  of  the  creditors  is  called ;  the  defaulter 

guard  as  to  how  far  the  opinion  of  made  to  a  master  to  ascertain  what 
those  members  who  have  an  inter-  deductions  should,  under  the  by- 
est  is  to  be  considered.  Ex  parte  laws,  be  made.  Clarkson  vs.  To- 
Ward,  L.  R.  20  Ch.  Div.  356.  ronto  Stock  Exchange,  13  Ont.  213. 

"VNTicre  the  by-laws  provided  no        '  Ex  parte  Ward,  20  Ch.  Div.  356. 
means  of  deciding  a  contest  as  to       ^  jj^  j.^  ij^yes,  75  N.  Y.  Supp.  312. 
the  propriety  of  particular  dcduc-       ^  Tomkins  vs.   Saffery,   3  L.   R. 
tions,  the  jurisdiction  of  the  court  is    App.  Cas.  213. 
not  ousted  and  a  reference  will  be 


Lien  on  Seats.  121 

(as  he  is  required  to  do)  makes  his  statement ;  and,  the  assem- 
bled creditors  having  decided  what  is  to  be  done,  the  official 
assignees  carry  the  decision  into  execution.  The  committee 
of  the  Exchange  has  the  power  to  readmit  the  defaulter  or 
to  refuse  him  readmission.  C.  made  his  statement  at  the 
first  meeting,  declaring  at  that  time  he  had  no  debts  out- 
side the  Stock  Exchange.  His  Stock  Exchange  creditors 
then  consented  to  accept  a  composition,  and  to  provide  for 
a  part  of  it  he,  at  the  demand  of  the  official  assignees,  gave 
them  a  cheque  for  £5000,  then  standing  to  his  credit  in  the 
Bank  of  England.  The  official  assignees  obtained  the  money 
and  apportioned  it  among  his  Stock  Exchange  creditors. 
C.  afterwards  confessed  to  owing  debts  to  a  large  amount 
to  outside  creditors,  and  was  declared  a  bankrupt.  The 
trustee  in  bankruptcy,  on  belialf  of  the  general  creditors, 
claimed  from  the  official  assignees  of  the  Stock  Exchange 
the  £5000,  and  the  court  decided  that  the  trustee  Avas  en- 
titled to  claim  it,  for  the  action  of  C.  in  paying  it  to  the 
official  assignees  amounted  to  a  ccmIo  honorum,  and  consti- 
tuted an  act  of  bankruptcy  ;  and  that  the  rules  of  the  Stock 
Exchange  as  to  defaulting  members  of  the  body  are  the 
rules  of  a  domestic  forum,  which  have  no  influence  on  the 
rights  of  those  who  are  not  amenable  as  members  to  the 
jurisdiction  of  that  body.  They  cannot,  therefore,  govern 
the  i-ights  of  the  genei'ul  creditors  of  a  defaulting  member. 
The  Lord  Chancellor,  in  delivering  his  o|)inion  in  this 
case,  said  :  "  I  can  see  nothing  whatever  in  those  rules  which 
is  deserving  of  any  animadversion  whatever.  They  seem 
to  me  to  be  judicious  and  business-like  rules.  Tiiey  do  not 
seem  to  me  to  be  ruh-s  contemplating  or  intiMiding  in  any 
way  to  war[)  c»r  strain,  or  in  any  way  lo  (dude  or  defeat 
the  operation  of  the  baidiruptcy  law  of  the  country  ;  but 


122  Stock-brokers  and  Stock  Exchanges. 

they  iire  rules  which,  from  the  very  nature  of  the  case,  are 
and  must  be  subject  to  one  infirmity — namely,  that,  if  they 
are  to  be  effectual,  they  must  be  applicable  to  the  case  of 
a  person  who  not  merely  is  a  defaulter  upon  the  Stock 
Exchange,  but  wlio  has  no  creditors  outside  the  Stock 
Exchange;  because  if  such  a  person  has  creditors  outside 
the  Stock  Exchange,  the  general  law  of  the  country  will 
step  in,  and  must  step  in,  and  will  give  to  those  creditors  rights 
which  these  rules  cannot  take  away  from  them,  and  which, 
I  am  bound  to  say,  these  rules  do  not  profess  to  attempt  to 
take  away  from  them.  Therefore,  although  everything 
done  in  the  domestic  forum  of  the  Stock  Exchange  under 
those  rules  may  be  done  according  to  the  rules,  and  may 
be  most  wholesome  in  its  operation  for  the  members  of  the 
Stock  Exchange,  still  what  is  done  must  be  subject  to  the 
rights  of  those  who  are  not  amenable  to  the  jurisdiction 
of  the  Stock  Exchange ;  and  when  those  higher  rights 
come  into  conflict  with  these  rules,  of  course  these  rules 
must  give  way  to  those  higher  rights." 

But  in  the  case  of  Ex  parte  Grant,  Ee  Plumbly,^  the  case 
of  Tomkins  vs.  Saffer}'  was  distinguished  ;  and  the  result 
shows  that  the  English  courts  did  not  mean  to  condemn  all 
the  transactions  of  an  insolvent  Broker  as  void,  whereby 
his  fellow-members  reaped  the  benefit  of  his  assets  to  the 
exclusion  of  his  outside  creditors. 

The  facts  of  this  case  showed  that  on  the  25th  of  June, 
1879,  Plumbly,  a  Stock-jobber,  and  a  member  of  the  London 
Stock  Exchange,  having  given  notice  that  he  was  unable  to 
meet  his  engagements,  was  declared  a  defaulter  in  accord- 
ance "with  Rule  142  of  the  Stock  Exchange.     The  same  day 

1  42  L.  T.  R.  (n.  s.)  387. 


Lien  on  Seats.  123 

he  tiled  a  liquidation  petition,  and  a  trustee  was  afterwards 
appointed.  Grant,  the  official  assignee  of  the  Stock  Ex- 
change, in  obedience  to  Eule  16S,  closed  all  Plunibly's  con- 
tracts with  members  of  the  Stock  Exchange,  which  were 
open  for  the  next  account  or  settling  day,  the  2Tth  of  June, 
at  the  market  prices  on  the  25th  of  the  various  stocks  and 
shares  contracted  for;  and  called  upon  those  members  who 
on  that  footing  "were  debtors  on  their  contracts  with  Plum- 
bh',  to  pay  to  the  official  assignee  the  differences  due  from 
them.  On  hearing  this,  the  trustee  gave  notice  to  the  debtors 
to  })ay  the  money  to  him,  instead  of  to  the  official  assignee. 
Thi'V,  however,  paid  them  to  the  official  assignee.  The 
amount  of  these  differences  so  received  was  £3957,  which  sura 
was,  under  Rule  168,  divisible  among  those  members,  of  the 
Stock  Exchange  who,  on  the  above-mentioned  footing,  were 
creditors  for  differences  on  their  contracts  with  Pluinbly. 

The  rules  of  the  Stock  Exchange  apply  to  Jobbers  as 
well  as  to  Brokers.  It  appeared  to  be  the  practice  of  Stock- 
jobbers to  make  two  contracts  equal  and  opposite  at  once, 
so  that  a  Stock-jobber's  legitimate  profit  is  the  difference 
between  the  buying  and  selling  })rices,  and  the  fact  of  stocks 
going  up  or  down  in  price  docs  not  affect  him.  The  Job- 
ber does  not  deal  with  an  outside  principal,  but  only  with 
members  of  the  Stock  Exchange. 

The  trustee  in  the  liquidation  claimed  the  £3957  as  part  of 
the  assets  distributable  am<jng  Plumbly's  creditors.  The  reg- 
istrar, being  of  opinion  that  the  case  was  within  Tomkins  vs. 
Saffery,'  held  that  the  trustee  was  entitled  to  the  money. 
The  official  assignee  appealed,  and  the  judgment  w;ls  re- 
versed ujion  the  theory  laid  down  by  thecoui-t,  per  Paggal- 

'  37  L.  T.  H.  (n.  k.)  758;  :j  1-.  R.  .\|)|).  Cits.  213. 


124  Stock-brokers  and  Stock  Exchanges. 

lay,  L.  J.,  that  the  distinction  to  be  drawn  between  this  case 
and  that  of  Tomkins  vs.  Satl'ery  was  a  very  marked  one. 
Here  there  is  no  division  of  Plumbly's  money.  The  official 
assignee  holds  no  private  assets  of  Plumbly,  and  the  fund 
which  he  has  collected  is  a  fund  collected  by  virtue  of  certain 
rules  of  the  Stock  Exchange  ;  certain  sums  ascertained 
in  a  particular  way  being  raised  from  particular  members 
of  the  Stock  Exchange,  and  applied  in  a  particular  manner. 
These  funds  can  in  no  respect  be  regarded  as  funds  belong- 
ing to  Plumbly ;  they  are  voluntary  contributions  of  the 
members  of  the  Stock  Exchange,  to  be  applied  in  satisfac- 
tion of  the  Stock  Exchange  creditors ;  or,  if  they  ai-e  to  be 
regarded  as  moneys  handed  over  by  persons  who  had  be- 
come surety  to  meet  the  claims  of  the  Stock  Exchange,  in 
either  view  of  the  case  they  cannot  be  claimed  by  the  trus- 
tee. "It  certainly  did,"  says  the  learned  justice,  "atone 
time  occur  to  me  that  some  injustice  might  be  done  to  the 
general  creditors  of  Plumbly  by  the  official  assignee  taking 
these  sums.  But  the  ti-uo  view  of  the  case  appears  to  me  to 
be  this :  As  far  as  regards  any  losing  contracts,  entered  into 
by  Plumbly,  the  trustee  in  bankruptcy,  or  in  liquidation  is 
relieved  from  them  ;  and  if,  on  the  otlier  hand,  it  is  said  that 
there  may  be  some  winning  contracts,  the  answer,  as  far  as 
regards  them,  is,  that  it  would  be  impossible  to  realize  on 
them,  because,  when  the  time  arrived  for  the  completion  of 
the  contract,  Plumbly  could  not,  and  would  not,  have  been 
ready  and  willing  to  ])erform  them.  In  making  these  ob- 
servations, I  do  not  mean  to  imply  that  in  such  cases  the 
contracts,  whether  losing  or  winning,  are  absolutely  void ; 
but,  in  regard  to  the  case  now  under  consideration,  T  am 
satisfied  that  no  injury  could  be  done  to  the  outside  creditors 
by  the  course  pursued." 


Lieu  on  Se.its.  125 

Upon  a  firet  reading,  there  seems  to  be  very  little  substan- 
tial distinction  between  the  case  of  Tomkins  vs.  Saffery  and 
the  last  one.  In  both  cases  the  money  had  been  placed  in  the 
hands  of  the  official  assignee  of  the  Stock  Exchange,  who 
had  received  the  same  from  debtors  of  the  insolvent  mem- 
ber/ and  who  had,  with  knowledge  of  the  latter's  insol- 
vency or  failure,  paid  out  the  money  so  received  to  his  Stock 
Exchange  creditors.  But,  in  the  one  case,  the  official 
assignee  received  the  money  by  virtue  of  a  check  given  by 
the  defaulting  Broker  upon  the  Bank  of  England,  an  outside 
debtor;  on  the  other  hand, the  official  assignee  received  the 
money  from  voluntary  payments  made  to  him  by  members 
of  the  Stock  Exchange  Avho  Avere  debtors  to  the  defaulter, 
but  who  were  under  no  obligations  to  pay  at  the  time 
they  did,  except  by  reason  of  their  being  such  members. 

There  is  nothing  unreasonable  in  annexing  to  a  member- 
ship of  an  Exchange  a  condition,  that,  if  the  member  fails 
to  perform  his  contracts,  his  seat  and  the  money  due  him 
from  fellow-members  should  first  go  to  satisfy  the  claims  of 
his  fellow-members.  Such  a  condition  is  in  the  nature  of  a 
lien  on  his  property  in  the  Exchange.  It  is  not  made 
secretly,  nor  with  any  intent  to  defraud  creditors ;  nor  are 
the  latter  injured  any  more  in  tliuir  rights  than  they  would 
be  in  the  case  of  a  mortgage.  It  is  upon  the  faith  of  this 
condition  that  his  fellow-mom bers  transact  any  business 
with  him,  and  it  is  hard  to  sul)scribo  to  a  doctrine  which 
invests  subsequent  outside  creditors  with  the  property  of  a 
defaulting  meinb'-T,  which  he  has  acquired  by  reason  of  his 
membership  in  tin;  Exchange.' 

'  In  Tomkirm  vs.  SafFcrv  he  n--  '  And  hiricc  tlii"  alxivc  was  wrilli'ii 
ceivcti  the  money  from  Ihr-  iiiHol-  Ihc  private  adiiiinislraliim  liy  tlic 
vent 'h  bank.     Sec  p.  120.  odicirs  i.f  llic  I'xrlianirf  of  tin-  iw- 


126  Stock-brokers  and  Stock  Exclianges. 

It  imist  also  be  borne  in  mind,  in  this  connection,  that 
there  is  a  wide  difference  in  the  facts  of  the  American,  from 
those  in  the  English,  cases  upon  which  we  are  commenting. 
In  the  former  cases  the  creditors  sought  to  reach  the  seats, 
or  the  proceeds  of  the  seats,  of  members  of  the  Stock  Ex- 
change ;  seats  which  had  been  granted  to  the  members 
with  certain  conditions  attached,  which  gave  a  preference 
to  their  fellow-members  ;  whereas  in  the  English  case  of 
Tomkins  vs.  Saffery,  the  Stock  Exchange  creditors  sought 
to  appropriate  money  in  bank,  belonging  to  the  insolvent 
member,  in  preference  to  his  outside  creditors.^ 

But  the  members  of  the  Exchange  have  no  lien  upon  the 
proceeds  of  a  seat  illegally  ordered  to  be  sold  by  the  associa- 
tion ;  and  in  an  action  by  a  member  whose  seat  has  been  so  ille- 
gally disposed  of ,  against  the  President  of  the  association  to 
recover  damages  as  for  a  conversion  of  his  property,  the  fact 
that  the  proceeds  have  been  applied  towards  satisfying  claims 
against  the  member  whose  seat  has  been  sold  is  not  a  matter 
in  mitigation  of  damages,  or  the  proper  subject  of  a  counter- 
claim. These  propositions  were  laid  down  in  the  case  of 
Sewell  vs.  Ives,  President.^ 

sets  realized  as  in  Ex  parte  Grant,  clients,  even  though  the  defaulter 

Re    riumbly,  to    the    payment    of  has  in   tuni  become  liable  on  the 

debts  on  the  Exchange,  accounting  execution  of  the  same  contract,  to  a 

onlj'  to  the  trustee  in  bankruptcy,  jobber  member  of  the   Exchange, 

for  the  balance,  has  been  uniformly  Re  Woodd;  Ex  parte  King,  supra, 

sastained    in    England.     Ex   parte  '  Tomkins   vs.   Saffery   is  so  dis- 

Ward,  L.  R.  20  Ch.  Div.  356;  King  tinguished  in  Clarkson  vs.  Toronto 

vs.  Hutton,  L.  R.  2  Q.  B.  D.  1900,  Stock  Exchange,  13  Ont.  Rep.  221 

504;  Re  Woodd;  Ex  parte  King,  82  ^  61    How.    Pr.    Rep.    54.     The 

L.  T.  X.  S.  504.  measure  of  damages  is  the  value  of 

But    the    committee    is    not,    as  the  property  right  at  the  time  of  the 

against  the  trustee  in  bankruptcy,  conversion,  with  interest.     Olds  vs. 

entitled   to   balances   due  the   de-  Chicago  Open  Board  Trade,  33  111. 

faulting  member  from  his  outside  App.  445. 


Lien  cm  Seats.  127 

III  that  case  the  New  York  Stock  Exchange,  in  January, 
1S7S,  attempted  to  expel  the  plaintilf  upon  an  accusation 
of  "  obvious  fraud,  "  and  in  an  action  between  the  same 
parties  the  court  adjudged  and  decided  that  his  expulsion 
was  illegal  ami  void.  The  defendant,  treating  the  plaintiff 
as  effectually  expelled,  under  Article  XX .  of  its  constitu- 
tion, in  April,  1878,  sold  his  seat,  and  appropriated  the 
proceeds  to  the  payment  of  his  creditois  in  the  Ex- 
change. 

The  court  held  that  the  seat  of  a  member  in  the  Exchange 
was  property  in  every  proper  sense  of  the  term,  and  could  be 
sold  ;  and  was  transferable  as  any  other  species  of  jii'operty 
having  actual  value  as  such.  The  price  realized  bv  the  de- 
fendant was  $4000,  which  is  })roof  of  its  then  value.  It  was 
pr(jved,  and  tlie  court  on  the  foi-mer  trial  found,  that  the 
plaintiff  paid,  on  his  admission  to  the  board,  $2000  for  his 
seat. 

Although  the  plaintiff  was  a  suspended  member  of  the  New 
York  Exchange,  it  having  been  held  and  decided  that  his  al- 
leged expulsion  therefrom  was  void  and  of  no  effect,  it  fol- 
lowed that,  the  sale  of  his  seat  by  the  board  having  been 
made  solely  uj)on  the  ground  of  his  wrongful  expulsion,  the 
Exchange  became  by  that  act  responsible  to  the  plaintilf  for 
any  injury  or  damage  done  thereby. 

It  was  claimed  that  the  j)roceeds  of  this  sale  wcrc^  applie(l 
to  the  payment  of  the  plaintiff's  debts  in  the  Exchange,  and 
that  .such  payment  should  be  received  in  mitigation  of  dam- 
ages, if  not  in  bar  t<j  the  action.  The  court  said  :  "If  this  Ix' 
so,  it  must  b(i  upon  the  assumption  that  tlKMlefcntlant  h;id  au- 
thority todisposoof  the  scat,  and  to  recciv*;  ami  ap|)ro|»i-i:il(» 
the  proceeds  of  the  sale  to  his  creditors."  The  court  held 
that  und«*r  the  facts  in  thccasc,  no  such  aulhorit  v  was  shown, 


128  Stock -brokers  and  Stock  Exchanges. 

nor  can  any  be  inferred,  as  all  the  proceedings  on  defendant's 
part  were  wholly  illegal  and  void. 

The  })roperty  AvrongfuUy  taken  or  appropriated  by  the 
defendant,  in  satisfaction  of  a  demand  against  the  plaintiff 
as  owner,  cannot  be  set  up  in  bar  or  in  mitigation  of  dam- 
ages suffered  by  him.  The  first  objection  urged  against 
the  plaintiff's  right  to  recover  Avas  that  the  action  was  for 
the  conversion  of  personal  property,  commonly  known  as 
an  action  of  trover.  The  declaration  tersely  set  out  "  that 
the  plaintiff  was  owner,  and  entitled  to  the  possession,  of 
a  seat  in  the  association  of  the  value  of  $10,000  ;  that  the 
defendant  wrongfully  and  unlawfully  sold  said  seat  and 
converted  the  proceeds  to  its  own  use,  to  the  plaintiff's 
damages." ' 

The  court  held  that  it  was  too  late  to  raise  this  objec- 
tion. The  defendants  treated  the  seat  of  the  plaintiff  as 
their  property,  or  they  could  not  have  undertaken  to  sell 
it.  They  are  estopped  by  their  own  acts.  The  amount  of 
recovery  in  the  action,  the  court  decided,  was  the  amount 
of  the  proceeds  received  by  the  defendant,  with  interest.^ 


^A   similar   complaint   was   sus-  greatly  diminishing;  its  value.    Jones 

tained    on    demurrer    in    Cecil    vs.  vs.  Fisher,  2  Western  Rep.  890. 
Simmons,  N.  Y.  Daily  Reg.  March        One  of  the  by-laws  of  the  New 

17,  1886.  York  Cotton  Exchange  provided  for 

^  Where  a  certificate  of  member-  the  transfer  from  one  member  to 
ship  has  been  ordered  by  judicial  another  of  certificates  of  member- 
decree  to  be  transferred  by  the  ship  upon  ten  daj's'  notice  of  inten- 
person  in  whose  name  it  stood  to  tion  so  to  do,  such  notice  to  be 
the  actual  owner,  and  the  decree  posted  upon  the  bulletin  board  of 
has  not  been  obeyed,  on  inquisition  thf;  Exchange,  and  upon  payment 
of  damages,  the  proper  measure  is  of  all  claims  against  the  member 
its  value  when  it  should  have  been  making  the  transfer,  and  it  was  held 
so  transferred,  and  not  what  it  had  in  People  vs.  Miller,  39  Hun,  557, 
become,  during  the  delay,  by  being  that  this  by-law  should  have  been 
subjected    to    debts    to    members  strictly  complied  with  by  complet- 


Jurisdiction  of  Outside  Affairs.  129 

((/.)  The  Stock  Exchange  cannot  Take  Cognizance  of  Matters 
Arising  outside  of,  and  Disconnected  with  the  Purposes  of 
its   Organization. 

It  would  seem  entirely  reasonable  to  confine  and  limit  the 
jurisdiction  of  the  Stock  Exchange  to  those  matters  which 
arise  between  its  memhers  in  the  course  of  their  business  with 
each  other  as  Brokers,  otherwise  its  judicial  powers  might 
be  extended  to  embrace  every  affair  of  human  life,  which 
was  never  contemplated,  and  which  the  law  would  not  per- 
mit' 

Thus,  the  wife  of  a  Broker  might  bring  her  grievances 
before  the  Bf)ard  or  its  Committees,  and  claim  to  have  them 
settled  by  that  tribunal,  just  as  any  outside  person  might 
insist  upon  having  an  action  of  assault  and  battery,  alleged 
to  have  been  committed  upon  him  by  a  member  of  the  Ex- 
change, determined  by  the  same  forum.  For  very  obvious 
reasons  the  law  will  not  permit  any  organizations  to  usurp 
the  prerogatives  of  the  regularly  constituted  courts  of  jus- 
tice. One  of  the  most  important  is,  that  such  an  organization 
has  no  power  to  issue  subpoenas,  or  any  other  compulsory 
process,  to  enforce  the  attendance  of  witnesses.     It  can  co- 

ing  the  tran-sfer  and  obtainftip  a  sur-  law  for  ilainajips,  and  not  by  man- 
render  of  the  certifK-ate  at  the  end  danius. 

of  the  ten  days  and  that  a  notice  of  '"This  proposition  is  certainly 
nearly  one  year  wits  insiiificient,  as  consistent  with  the  purpose  for 
the  selUnK  nuinljcr  cfjiitinued  to  be  which  the  jussociation  w;is  formed, 
Huch  until  the  certificate;  wa-s  sur-  is  pat«'nt  from  a  reading  of  the  in- 
rendered,  and  mifiht  incur  further  stnunent  vitalizing  it,  and  should 
HabiUties,  the  lien  of  which  mi^ht  not  l)e  extended  to  the  detriment  of 
not  be  HufTicieiitly  protected  by  one  of  the  contractinu  parties  in>- 
Hueh  an  indefinite  notice.  It  was  less  the  lanmiajie  of  the  provision 
held  in  that  cawe  als<»  that  tin-  p>ir-  invoked  urunistakably  intends  it." 
chasing  member's  remedy  atrainst  Per  licvintritt,  J.,  Hcrnheim  vs. 
the   corfjoration    was  bv   action   at  Kcppler,  'M  Misc.  .'VJl. 

9 


130  Stock-brokers  and  Stock  Exchanges. 

erce  its  own  iiR-inbcrs  into  attendance  by  threatening  ex- 
pulsion, but  it  has  no  power  over  outside  witnesses. 

Another  ((jually  iin[)()rlant  r(nis()n  is,  that  the  law  has 
prescribed,  for  the  determination  of  disputes  between  citi- 
zens, regular  and  well-ada])ted  forms  and  proceedings,  which 
no  one  can  be  deprived  of  against  his  will.^ 

And  while  a  voluntary  association  may  adopt  rules  obliga- 
tory upon  its  own  members,  by  which  their  rights  may  be 
summarily  determined  as  between  themselves,  such  determi- 
nation has  no  external  force  to  injure  or  impair  the  riglitsof 
non-members  not  voluntarily  subject  to  the  jurisdiction  of 
the  ti'ibunal." 

Chief  Justice  Tilghman,"'  in  speaking  of  a  corporation 
taking  cognizance  of  matters  unconnected  with  the  affairs 
of  the  society,  said  :  "  So  far  from  its  being  necessary  for 
the  good  government  of  the  corporation,  it  appears  to  me 
tiiat  taking  cognizance  of  such  offences  will  have  the  per- 
nicious effect  of  introducing  private  feuds  into  the  bosom 
of  the  society  and  interrupting  the  transaction  of  business."* 

In  the  case  of  Leech  vs.  Harris'  the  plaintiff  was  a  mem- 
ber of  the  Philadelphia  Board  of  Brokers,  a  private  unin- 
corporated association,  similar  to  the  New  York  Stock 
Exchange.     One  ]\r.  presented  a  complaint  to  the  board, 

'  See,  for  other  cases  illustrating  bors  of  the  association.     With  the 

this  proposition,  the  next  succeed-  private  affairs  of  its  members,  the 

ing  subdivision  (e.).  corporation  has  nothing  to  do,  and 

'  Morris  vs.  Grant,  34  Hun,  377.  any  by-law  attempting  to  interfere 

^  Commonw.  vs.  St.  Pat.  Benev.  vnth  such  affairs  is  nece.ssarily  ultra 

Sec,  2  Binn.  449.  vires   and    void."     Boisot   on    By- 

*  "The  power  of  a  corporation  to  Laws      (2d    ed.),     §72.     See    also 

control  the  conduct  and  define  the  Green  vs.   .'\frican  Methodist  Soci- 

rights  of  its  members,  by  means  of  ety,  1  S.  &  Rawle  (Pa.),  254. 

its  by-laws,  is   limited    strictly   to  *2  Brews.  (Pa.)  571. 
their  rights  and  conduct  as  mem- 


Jurisdictiou  of  Outside  Affairs.  131 

charging  the  plaintiff  with  having  obtained  money  from 
him  by  falsely  pretending  that  he  had  paid  a  large  sura  of 
money  for  certain  oil  lands,  and  thus  inducing  ^[.  to  pur- 
chase an  interest  in  the  same.  Thereupon  the  board  ap- 
pointed a  committee  to  investigate  the  charges,  which  it 
was  proceedin.;-  to  do,  when  the  plaintiff  procured  an  in- 
junction, on  the  ground  that  the  board  had  no  jurisdiction 
over  the  question,  and  that  it  would  be  impossible  for  him 
to  produce  his  witnesses  without  the  aid  of  the  process  of 
the  courts,  which  could  not  be  obtained  in  behalf  of  de- 
fendant's tribunal.  The  court,  after  full  argument,  in  a 
careful  opinion  granted  a  perpetual  injunction,  on  the 
ground  tliat  the  matter  sought  to  be  inquired  into  was 
not  within  the  juiisdiction  of  the  board.     The  court  said : 

"  "What  the  plaintiff  really  submitted  to  when  he  became 
a  member  of  the  Board  of  Brokers  Avas  that  the  board 
should  take  jurisdiction  if  he  should  refuse  to  comply  with 
his  stock  contracts;  not  that  they  should  have  jurisdiction 
of  his  contracts  touching  houses,  lands,  leasehold  estates, 
or  farming  interests.  ...  I  do  not  perceive  that  either  by 
the  law  of  the  association,  by  the  law  of  the  land,  or  by 
submission  to  its  jurisdiction,  the  Board  of  Brokers  has  ac- 
quired any  rigiit  to  arljitratc  and  settle  the  mattci's  in  dis- 
pute between  the  i)hiiiitiir  and  Mr.  lieubcn  Manley,  Jr. 
The  courts  of  law  are  open  to  Mr.  Manley  to  vindieate  his 
rights  and  to  redress  any  wrongs  done  to  him.  Thit  the  Board 
of  Bnjkers  cannot  erect  itself  into  a  tribunal  for  this  pur- 
pose. The  |)i;iiiitill'  has,  in  my  opinion,  a  cleai'  right  to  the 
protection  of  a  comt  of  equity.  He  has  a  vahuible  interest 
in  his  membership  in  th(*  l)oard,  which  cost  him  $'J,(hi().  He 
has  an  interest,  in  common  with  his  fellf>w-mcMil)ers,  in  the 
accumulated  funds  of  the  association,  and  in  the  claim  which 


132  Stock-brokers  and  Stock  Exchanges. 

be  would  have,  in  case  of  necessity,  upon  the  fund  set  apart 
to  aid  poor  or  distressed  nieuibei's  or  their  families  whoni 
the  board  may  think  proper  to  assist,  lie  has  a  right,  also, 
to  be  })rotected  in  his  gooil  name  nnd  rej)utation  fiom  unau- 
thorized proceedings  against  him,  in  which  he  cannot  have 
the  assistance  of  a  court  of  law  to  compel  the  attendance 
of  witnesses  or  to  obtain  testimony  from  abroad." ' 

A  related  question  is  that  of  the  exercise  of  jurisdiction 
by  a  committee  of  the  Exchange,  over  a  matter  arising  on 
the  Exchange,  but  beyond  the  jurisdiction  conferred  upon 
the  committee  by  the  by-laws.  A  determination  made  in 
the  exercise  of  such  unwarranted  jurisdiction  is  wholly 
nugatory  and  will  not  be  regarded  l)y  the  courts.-  Accord- 
ingl}"-  a  committee  empowered  to  pass  upon  the  regularity 
and  genuineness  of  the  form  of  securities  dealt  in,  has  no 
jurisdiction  to  adjudge  the  legal  rights  of  the  parties  to  a 
transaction  where  the  regularity  or  genuineness  of  the  se- 
curities are  ni^t  involved,  and  if  it  relieves  a  vendee  from 
the  obligations  of  a  contract  of  sale,  enforceable  in  law,  the 
determination  will  be  set  aside  by  the  courts.^ 

(c.)    Members    not    Bound   Inj  liii/cs   ir/iirh  Prevent  Recourse  to 
Courts  of  Laic. 

This  subject  is  closely  connected  with  that  which  has  been 
briefl}'  discussed  under  the  preceding  subdivision. 

'  Examine,    in    this    connection,  under  the  charter  or  by-laws  of  an 

rule  of  Stock  Exchange  as  to  paying  incorporated   Exchange    to    deter- 

debts,   submitting  differences,   etc.  mine  who  was  the  owner  of  a  dis- 

^  Morris  vs.  Grant,  34  Hun,  377;  puted  right  of  membership,  a  mem- 

Sawj^er  vs.  Gruner,  17  X.  Y.  Supp.  ber  is  not  guilty  of  improper  con- 

465.  duct  warranting  liis  expulsion  for 

'  Morris    vs.    Grant,    supra.     So,  resorting  to  the  courts  to  prevent 

too,  where  there  was  no  jurisdiction  the  corporation  from  disposing  of 


lllepU  Rules.  133 

It  is  a  Tvell-recognized  principle  of  law  appertaining  to 
incorporated  bodies  that  where  their  by-laws  prohibit  the 
members  from  pursuing  their  legal  remedies  beyond  the 
jurisdiction  of  the  corporation,  such  b3'-laws  are  void.*  The 
theory  being  that  no  power  less  than  that  of  the  Legislature 
can  exclude  the  subject  or  citizen  from  his  right  to  legal 
redress.' 

There  is  no  substantial  reason  why  this  principle  should 
not  be  applied  to  the  by-laws  or  rules  and  i-egulations  of 
unincorporated  associations,  and  the  precedents  are  directly 
that  way. 

In  Austin  vs.  Searing  ^  the  question  discussed  was  as  to 
the  validity  of  a  by-law  which  undertook  to  confer  judicial 
powers  upon  a  body  of  officers  of  the  association,  with  power 
to  adjudicate  upon  alleged  violations  of  rules,  and  to  de- 
cree a  forfeiture  of  the  rights  to  such  property  as  the 
parties  violating  the  rules  were  possessed  of  as  members  of 
the  association.  The  court  said  :  "  But,  were  it  distinctly 
averred  that  the  defendants  had  subscribed  the  constitution 
of  the  grand  as  well  as  of  the  subordinate  lodge,  I  should 
still  be  of  the  opinion  that  public  policy  would  not  admit 
of  parties  binding  themselves  by  such  engagements.  The 
effect  of  some  of  the  provisions  of  these  constitutions  is  to 
create  a  tribunal  having  power  to  adjudicate  upon  the 
rights  of  j)ropi'rly  of  all  tlie  members  of  the  subordinate 
lodges,  and  to  transfer  that  |»i-o|)('rty  [o  others  ;  tlii'  mem- 

Huch  a  riRht  claimc«l  !)>•  liiin.     Pco-  Hullard   vs.   Honiu-tt,  2  Hurr.  77S; 

pie   vx    Tc\.    Klliott    V8.    New    York  .Middlctun's    Ca.so,    Dyer,    'S.V.i    (a); 

fxtttoii  Kxrliaiinc,  H  Hun,  216.  Statf   ex    rel.    K(Muu'<iy    vs.    Union 

'  An^.  <fe  AmtJH  on  f'orp.  (1  llh  fd.)  .Monhants'  Kxchan^o,  2  .Mo.   App. 

5  3-11.  «»(•>,  at  J).  101. 

*  I'layor  vs.  Anlifr,   2  Sid.    121  ;  '  IT,  X.  V.  123;  s.  c  annotated.  ()<» 

Ix>ndon  vh.  Ik>rnardiston.  1  Lev.  1 1  ;  .\in.   Doc.  070. 


134  Stock-brokers  and  Stock  Exchanges. 

bers  of  this  tril)iiniil  being  liable  to  constant  fluctuations, 
and  not  subject  in  any  case  to  the  selection  or  control  of 
the  i)arties  upon  whose  rights  they  sit  in  judgment." 

To  create  a  judicial  tribunal  is  one  of  the  functions  of 
the  sovereign  power ;  and  although  parties  may  always  make 
such  tribunal  for  themselves,  in  any  specific  case,  by  a  sub- 
mission to  abitration,  yet  the  power  is  guarded  by  the  most 
cautious  rules.  A  contract  that  the  parties  will  submit 
confers  no  power  upon  the  arbitrator ;  and,  even  where 
there  is  an  actual  submission,  it  may  be  revoked  at  any 
time.  The  law^  allows  the  ])arty  up  to  the  last  moment  to 
ascertain  whether  there  is  not  some  covert  bias  or  prejudice 
on  the  part  of  the  arbitrator  chosen.  It  would  hardly 
accord  Avith  this  scrupulous  care  to  secure  fairness  in  such 
cases  that  parties  should  be  held  legally  bound  by  an  en- 
gagement, by  which  the  most  extensive  judicial  powei-s  are 
conferred  upon  bodies  of  men  whose  individual  members 
are  subject  to  continual  fluctuations.' 

So,  in  the  case  of  Heath  vs.  President  of  the  Gold  Ex- 
change,- the  eff'ect  of  a  clause  in  the  constitution  of  an  un- 
incorporated association  was  considered,  providing  that  "it 
shall  be  the  duty  of  said  committee  (arbitration)  to  take 
coo-nizance  of,  and  exercise  jurisdiction  over,  all  claims  and 
matters  of  difference  between  the  members  of  the  board, 
and  their  decision  shall  be  binding."  The  plaintiff,  at  the 
commencement  of  his  action,  was  a  member  of  the  Gold 
Exchange,  and  sought  to  restrain  the  defendant,  by  injunc- 
tion, from  proceeding  to  hear  and  determine,   under  such 

*  See  also  White  vs.  Brownell,  3   nis  vs.  Kennedy,  19  Barb.  (N.  Y.) 
Ab.  Pr.  (n.  s.)  318;  s.  c.  on  appeal,    .527. 
4  id.  162,  198;  Savannah  Cotton  Ex-       ^^  7  Ab.  Pr.  (n.  s.)  251. 
change  vs.  State,  .54  Ga.  6G8;  Den- 


Illegal  Rules.  135 

clause,  a  dispute  between  bimself  and  other  members  of  the 
body.  Subsequent  to  the  suit,  and  before  the  argument  for 
a  perpetual  injunction  had  been  heard,  the  plaintiff  resigned 
his  membership  in  the  Exchange. 

It  was  held  :  1.  That  before  a  member  could  be  bound 
by  the  constitution  and  by-laws  of  such  a  body,  it  must  ajv 
pear  that  he  personally  assented  to  the  same.^  2.  That  the 
most  that  could  be  claimed  for  the  arbitration  clause  in 
question  was,  that  it  should  have  tlie  same  force  and  effect 
as  an  agreement  in  writing,  made  by  persons  to  submit  to 
the  decision  of  one  or  more  arbitrators  any  controversy 
existing  between  them,  and  that  the  phaintiff  had  the  right 
to  revoke  and  annul  the  power  to  arbitrate  ;  that  by  resign- 
ing from  the  board  this  was  conclusively  established ;  and 
that  any  attempt  afterwards  to  arbitrate  claims  by  the 
board  was  null. 

The  decision  was  placed  upon  the  ground  that  the  enforce- 
ment of  arbitration  agreements  was  against  public  policy  ; 
and  that,  as  courts  of  justice  are  presumed  to  be  better 
capable  of  administering  and  enforcing  the  real  rights  of 
the  parties  than  mere  private  arbitrators,  such  agreements 
would  not  be  enforced  either  in  law  or  equity.^ 

•  Austin  vs.  SearitiK,  IG  X.  Y.  112.  MiUliell  vs.  Harris,  2  Ves.  Jr.  129, 

But  see  as  to  tliis  White  vs.  Brow-  and  N.  Sumner's  ed.;  Simmons  vs. 

nell,  4  -Xb.  Pr.  (n.  s.)  162,  193.  Monier,   29   Barb.   419;  Smith   vs. 

'The  following;  cas<«  were  cited  Compton,    20    id.    2G2.        See   also 

on  the  la-st  point:  Russell's  Arbitra-  State   e.\   rel.    Kennedy   vs.   Union 

tor,  147;  2StoryE'|.  Jiir.  §  1  1.')?;  1  id.  Merchants'  E.\chanfie,  2  Mo.  App. 

J  G07;Kill  vs.  ilolli.sler,  1  Wils.  129;  101,     and    the    many    ca-sos    cited 

Street  vs.  Rij^by,  G  Ves.  HIH;  Ajcar  in  2  Am.  &  Eng.  Ency.  of  Law  (2d 

vs.  Miu.-klcw,  2  Sim.  A:  S.  4 IS;  Milncs  ed.),  570. 

vs.  Gery,  14  Ves.  40S;  Thomp.son  vs.        The  distinction  attempted  in  the 

Chamock,  8  Term,  139;  HaKgart  vs.  cuse  of  Farmer  vs.  Boanl  of  Triule, 

Morgan,  5  N.  Y.  (1  Seld.)  422.     See  7S  Mo.  App.  r)G7,  that  the  associa- 

also  Lloyd  vs.  Loaring,  G  Ves.  772;  tion  may  rightfully  enforce,  not  tin; 


136  Stock-brokers  and  Slock  Kxchaiiscs. 

Upon  this  question  of  tho  right  of  ;i  incinhcr  to  apply  to 
the  courts,  there  is  another  article  of  the  constitution  of  tlie 
New  York  Stock  Excliange  which  is  important  to  be  con- 
sidered. 

By  tho  22d  article'  of  that  constitution  it  is  declared  that 
"any  incinhcr  of  the  Stock  Excliange  who  shall  himself,  or 
whose  pai'tncr  or  partners  shall,  apply  for  ;in  injunction  or 
legal  instrument  restraining  any  officer  oi' committee  of  the 

agreement  to  arbitrate,  lint  the  an  unincorporated  Board  of  Trade 
penalty  of  expulsion  for  refusal  to  and  by-laws  pursuant  thereto,  au- 
arbitrate,  is  not  unsound  and  that  thorizinp;  and  indeed,  requirin<:;  the 
case  itself  is  opposed  to  the  earlier  settlement  of  all  questions  of  dis- 
ease in  the  same  state.  Cf .  State  pute  between  members,  by  commit- 
ex  rel.  Kennedy  vs.  Union  Mer-  tees  of  arbitration,  was  judicially 
chants'  Exchanjie,  2  Mo.  App.  96.  commended  in  Vau{i;hn  vs.  Ilerndon, 
It  has  been  said  by  an  able  judije  91  Tenn.  Gl,  "as  wise  le<;islation, 
that  it  was  difficult  to  assign  any  that  will  operate  to  prevent  much 
good  reason  at  this  day  why  an  needless  and  expensive  litigation  as 
executory  contract  for  the  amicable  well  as  promote  the  welfare  of  corn- 
adjustment  of  any  differences  that  merce,  if  correctly  enforced." 
may  arise,  either  bj'  arbitration  or  The  fact  that  a  member  is  given 
otherwise,  made  by  parties  .standing  l)y  the  by-laws  an  opportunity  to 
upon  an  equal  footing  and  intelli-  arbitrate  or  conciliate  his  differ- 
gently  and  deliberately,  should  not  ences  where  a  complaint  has  been 
stand  and  the  parties  made  to  abide  made,  before  it  shall  be  referred  to 
by  it  and  the  judgment  of  the  tri-  the  board  of  managers,  does  not 
bunal  of  their  choice,  and  that  the  make  the  by-law  under  which  the 
tendencj'  of  the  more  recent  deci-  complaint  is  made  coercive  or  in- 
sions  is  to  narrow  rather  than  en-  valid  as  repugnant  to  public  policy 
large  the  operation  and  effect  of  on  the  ground  that  it  gives  the 
prior  decisions.  The  rule  that  an  l)oard  power  to  punish  only  when 
agreement  to  arbitrate  all  questions  the  member  refuses  to  arbitrate, 
that  may  arise  will  not  oust  the  Such  a  by-law  does  not  compel  the 
courts  of  jurisdiction,  is  not  to  be  member  to  submit  to  arbitration 
extended  or  applied  to  new  cases  but  permits  him  to  do  so  or  not  as 
not  coming  within  the  letter  and  he  chooses.  In  re  Haebler  vs.  N.  Y. 
spirit  of  previous  decisions.  Allen,  Produce  Exchange,  149  X.  Y.  414; 
J.,  in  President,  etc.,  Del.  &  Hudson  Hurst  vs.  X.  Y.  Produce  Exchange, 
Canal  Co.  vs.  Pa.  Coal  Co.,  50  X.  Y.  100  X.  Y.  60.5;  s.  c.  fully  reported,  1 
250,  at  258-259.  Cent.  Rep.  260. 

And  a  provision  in  the  charter  of  '  This  article  has  been  rescinded. 


lUesal  Rules.  137 

Exchange  from  performing  his  or  its  duties  under  the  con- 
stitution and  by-kws,  shall  by  that  act  cease  to  be  a  mem- 
ber of  the  association." 

The  general  effect  and  meaning  of  a  provision  similar  to 
the  above  has  been  before  the  courts  on  several  occasions. 
If  the  intention  of  the  enactment  is  to  prevent  a  member 
from  appealing  to  the  courts  from  an  arbitrary  and  illegal 
decision  against  his  rights  and  privileges  as  a  member  of  an 
association,  which  he  otherwise  would  be  deprived  of,  it 
seems  that  such  ]>rovision  would  be  abortive  and  illegal.^ 

In  the  case  of  Sewell  vs.  Ives,  heretofore  referred  to,^  this 
provision  was  invoked  by  the  Exchange  against  the  ])lain- 
tiff,  but  the  court  passed  it  without  notice,  and  determined 
the  case  upon  other  grounds.  So,  in  Leech  vs.  Harris,^  it  was 
said  :  "  It  is  not  alleged  that  he  has  in  any  manner  offended 
against  the  rights  or  interests  of  the  Board  of  Brokers,  or 
failed  in  his  duty  as  a  member  thereof,  unless  his  refusal  to 
submit  to  its  claim  of  authority  in  this  case  can  be  construed 
into  an  offence  against  his  duty  as  a  member  of  the  board. 
If  he  is  right  in  resisting  the  authority  which  the  board 
claims  over  him,  then  he  has  committed  no  offence  against 
his  duty  as  a  member.  In  such  case  his  right  of  self-protec- 
tion justifies  him  in  his  action,  an<l  he  more  faithfully  dis- 

'  .\astin  vs.  Seariiif;,  IG  N.  Y.  123;  pie  ex   rel.    Elliott    vs.    New   York 

Heath  vs.  President,  etc.,  of  Gold  Cotton    Exchunj^e,    8    Hun,    21G. 

Exchance,   7   Ab.    Pr.   (n.   s.)   2.51 ;  And    where    the    nilea    provide    a 

White  VH.  Brownell,  4  Ab.  Pr.  (n.  8.)  remedy  which  does  not  aHsunie  to 

162.  cxclmle     the     jurisdiction     of     the 

A  member  is  not  t^iilly  of  "iin-  cotirtx,  the  parties  to  contracts 
proper  conduct"  warranting  his  nnule  with  reference  to  such  rules 
expulsion,  in  applyinn  for  an  in-  are  not  to  be  restiicted  to  the  rein- 
junction  rcHtraininK  the  Exchange  etly  so  provided.  Clews  vs.  Jamie- 
from  proc(re<linc  in  a  matter  over  son,  IS2  U.  S.  -Ifil,  at  p.  495. 
which,  under  its  charter  and  by-  '  Ante,  p.  80. 
laws,  it  ha<l  no  jurisdiction.      Peo-  *2  HrewH    (Pa.)  f)?!. 


138  Stock-brokers  and  Stock  Exch.-inisres. 

charges  his  duty  as  a  meinberof  the  board  in  resisting  its 
encroachments  than  lie  would  in  submitting  to  its  unlawful 
authority.  Tie  becomes  not  only  the  vindicator  of  his  own 
rights,  but  the  vindicator  and  defender  of  the  rights  of  every 
member  of  the  board,  and  of  the  well-being  and  integrity  of 
the  board  itself." 

The  English  courts  have  also  emphatically,  through 
James,  L.  J.,'  endorsed  this  view.  "The  Stock  Exchange  is 
not  an  Alsatia.  The  Queen's  laws  are  ]mramount  there,  and 
the  Queen's  writ  runs  even  in  the  sacred  precincts  of  Capel 
Court." 

But  where  the  association,  in  expelling  or  disciplining  a 
member,  acts  within  the  sphere  of  its  authority  in  enforcing 
rules  which  are  not  contrary  to  law  or  public  policy,  the 
courts  will  not  interfere.- 

So  where  a  member  of  a  Stock  Exchange  signs  or  agrees  to 
a  constitution  in  ^vhich  is  contained  a  provision  referring  all 
differences  between  members  to  an  Arbitration  Committee, 
and  such  committee  proceeds  in  the  mode  pointed  out  by  the 
organic  Idw,  giving  full  notice  and  ample  opportunity  to  be 
heard,  it  has  been  held  that  a  meml)er  is  bound  by  the  result, 
and  a  court  will  not  interfere  in  the  matter.^ 

In  the  case  of  Sonneboi'n  vs.  Lavarrello  *  the  plaintiff  and 
defendants,  members  of  the  Xew  York  Produce  Exchange, 
had  voluntarily  submitted  to  the  Arbitration  Committee  there- 

*  Ex  parte  Safferj^  4  L.  R.  Ch.  D.  parties  are  simply  left  jis  they  were, 

561.  and  one  of  them  may  sue  the  other 

^  See  cases  cited,  ante,  under  sub.  in  the  courts.     There  should  be  rea- 

(6.)  of  §  8,  ch.  2;  Vaughn  vs.  Hern-  sonable  certainty  in  an  award  to 

don,  91  Tenn.  64.  make  it  conclusive  upon  the  rights 

^  But  if  the   committee    on   ap-  of  the  parties.     Redmond  vs.  Bed- 
peals,    of    the    Chicago    Board    of  ford,  40  111.  267. 
Trade,  simply  reverses  an  award  of  *  2  Hun  (N.  Y.),  201. 
the  committee  on  arbitration,  the 


Illegal  Rnles.  139 

of  (chosen  in  pursuance  of  §  5  of  ch.  359,  Laws  of  1862)  a  dis- 
pute arising  out  of  a  transaction  in  petroleum.  The  com- 
mittee having  decitled  in  favor  of  the  defendants,  the  phiin- 
tiffs  broufrht  this  action  to  restrain  them  from  entering: 
judgment  on  the  award,  on  the  grounds  that  the  arbitra- 
tors had  not  been  sworn,  and  that  they  had  received  ille- 
gal evidence.  It  was  held  that  the  plaintiffs,  by  ap- 
pearing before  the  committee,  making  their  statements, 
discussing  their  case  and  the  whole  controversy,  and  inter- 
posing no  objection  to  the  proceedings  in  any  respect,  had 
waived  any  such  irregularities  on  the  part  of  the  arbitrators. 
The  power  to  adjourn  rests  in  the  sound  discretion  of  the 
committee  ;  but  its  proceedings  in  this  respect  are  never- 
theless subject  to  review,  and  may  be  annulled  if  it  appear 
that  the  discretion  has  been  abused.^ 

So  when  a  member  of  the  New  York  Stock  Exchange 
cited  by  anotlier  member  to  account  for  a  sum  of  money 
claimed,  voluntarily  pays  the  same  with  full  knowledge  of 
all  the  facts,  he  cannot  recover  back  the  monev.  Fear  of 
the  Arbitration  Committee  before  which  the  claim  was  ad- 
justed is  not  duress.'^ 

'See  also  Lafond  vs.  Deems,  81  to  settle  business  disputes  hctwecMi 

N.  Y.  507,  at  514,  per  Miller,  J.     In  its  nieml)crs  under  its  l)y-lH\vs."   Id. 

arbitrations  generally  the  refu.sal  of  The  ca.se  of  Vauj^hn  vs.  Herndon,  91 

the  arbitrator  to   hear   testimony,  Tenn.  G4,  does  not  eonflict  with  this 

pertinent  and  material,  is  suffifient  view,    as   a   reading   merely   of   its 

to  set  aside  the  award.     Ilalsted  vs.  headnote  mijiht  indiealo. 
Seaman,  S2  N.  Y.  27;  s.  e.  :J7  \m.        'Quincey    vs.    White,   G3    N.   Y. 

Hep.  5.16.     And  this  also  is  the  rule  370;  rcversirifj  5  Daly,  32.     Nor  is  a 

appertaining  to  thf  trial  of  (lispuled  payment  iiiad(!  under  an  unfounded 

cjuestions  before  eomrnittees  of  I^x-  f«'ar   that    the    board    of    mnnjii^ers 

chanKCfl.     Ryan    vs.    rudahy,    157  would  <irder  suspension  in  ea.se  of 

III.    lOS,  at  p.  120.     See  Waite   vs.  non-payment,     recoverable,    when, 

Bartlett,    17  f'hie.    I,.   J.   03fi,   an«l  in   fact,    the   board   had    no    juris- 

artirle  on  "  Poworof  Hoard  of  Trade,  dirtion   or   aulhoritv   at  all    iti    tlie 


140 


Stock-brokers  and  Stock  Exchanges. 


liut  ill  a  recent  case  in  which  plaintiffs  sought  to  enjoin  the 
Chamber  of  Connnerce  of  the  city  of  Milwaukee  from  ex- 
pelling or  suspending  them,  it  was  held  that  if  the  board  of 


matter.  Sawyer  vs.  Gruner,  17 
N.  Y.  Supp.  465.  In  Scott  vs. 
Avery  (5  House  of  Lords  Cas.  845), 
the  Lord  Chancellor  (Cranworth), 
after  stating  the  nature  of  the  ac- 
tion and  the  pleadinsis,  said,  "There 
is  no  doubt  of  the  general  principle 
which  was  argued  at  your  lordship's 
I)ar,  that  parties  cannot  by  contract 
oust  the  ordinary  courts  of  their  ju- 
risdiction. That  has  been  decided 
in  man}'  cases.  Perhaps  the  first 
case  I  need  refer  to  was  a  case  de- 
cided about  a  century  ago — Kill  vs. 
HoUister  (1  Wils.  129).  That  was 
an  action  on  a  policy  of  insurance, 
in  which  there  was  a  clause  that,  in 
case  of  any  lo.ss  or  dispute,  it  should 
be  referred  to  arbitration.  It  was 
decided  there  that  an  action  would 
lie,  although  there  had  been  no  ref- 
erence to  arbitration. 

"Then,  after  the  lapse,  of  about 
half  a  century,  occurred  a  ca.se  be- 
fore Lord  Kenyon,  and,  from  the 
language  that  fell  from  that  learned 
judge,  many  other  cases  had  proba- 
bly been  decided  which  are  not  re- 
ported; but  in  the  time  of  Lord 
Kenyon  occurred  the  case  which  is 
considered  the  leading  case  upon 
this  subject,  the  case  of  Thompson 
vs.  Charnock  (S  T.  R.  139).  That 
was  an  action  upon  a  charter-party 
in  which  there  was  a  stipulation 
that  if  any  difference  should  arise  it 
should  be  referred  to  arbitration. 
That  clause  was  pleaded  in  bar  to 
the  action  which  had  been  brought 
uf>on  a  breach  of  the  covenant  with 


an  averment  that  the  defcndaTit  had 
been,  and  always  was,  ready  to  refer 
the  matter  to  arbitration.  That 
was  held  to  be  a  bad  plea,  upon  the 
ground  that  a  right  of  action  had 
accrued,  and  that  the  fact  that  the 
parties  had  agreed  that  the  matter 
should  be  settled  l:)y  arbitration  did 
not  oust  the  jurisdiction  of  the 
courts. 

"Just  about  the  same  time  oc- 
curred a  case  in  the  Court  of  Com- 
mon Pleas,  when  that  court  was  pre- 
sided over  by  Lord  Eldon — the  case 
of  Tattersall  vs.  Groote  (2  Bos.  &  P. 
131).  That  was  an  action  by  the 
administratrix  of  a  deceased  partner 
against  a  survi\ing  partner  for  not 
naming  an  arbitrator,  pursuant  to  a 
covenant  in  the  deed  of  partnership. 
To  that  action  there  was  a  demurrer, 
and  the  demurrer  was  allowed.  But 
that  case,  I  think,  can  afford  very 
little  authority  in  the  present  action, 
or  in  actions  similar  to  the  present, 
because  there  the  covenant  was 
only  that  if  any  dispute  arose  be- 
tween the  partners,  they  would 
name  an  arbitrator.  One  of  the 
partners  died,  and  his  administra- 
trix brought  an  action,  and  Lord 
Eldon  pointed  out  that  the  cove- 
nant did  not  apply  to  a  case  where 
one  of  the  partners  was  dead  and  an 
action  was  brought  by  liis  repre- 
sentatives. Therefore,  in  truth, 
that  amounts  to  no  decision  what- 
ever upon  the  general  question. 
There  was  then  a  case  before  Sir 
Lloyd  Kenyon  at  the  Rolls,  of  Half- 


Illegal  Kiiles.  141 

arbitrators  went  outside  the  scope  of  the  submission  or 
were  guilty  of  palpable  misconduct,  their  award  was  de- 
fective for  jurisdictional  error.' 

In  that  case  a  temporary  injunction  was  granted.  When 
a  statute  under  which  a  Chamber  of  Commerce  was  organ- 
ized conferred  upon  it  the  right  to  make  membership  con- 
ditional upon  the  submission  of  business  disputes  to  arbi- 
tration, a  by-law,  providing  for  expulsion  if  a  member  did 
not  submit  a  business  dispute  to  arbitration,  is  not  against 
public  policy  nor  does  it  oust  the  court  of  jurisdiction.* 

A  dispute  between  an  association  and  a  party  claiming  to 
be  a  member,  as  to  whether  such  party  is  a  member  or  not, 
is  not  a  dispute  between  the  association  and  such  a  person, 
as  memher,  and  consequently  is  not  a  case  within  a  by-law, 
or  statutary  provision  requiring  disputes  between  a  mem- 
ber and  the  society  to  be  decided  by  arbitration.^     And 

hide  vs.  Fennins  (2  Bro.  C.  C.  3.36),  not   enter   into   a    contract   which 

in  which  he  held  a  different  doc-  gives  ri.se  to  a  right  of  action  for  the 

trine.     That  wa.s  a  bill  for  an  ac-  breach  of   it,   and  then   withdraw 

count  of  partnership  transactions,  such  a  case  from  the  jurisdiction 

The  plea  to  that  bill  was  that  the  of    the    ordinary    tribunals.     But 

articles    contained    an    agreement  surely  there  can  be  no  principle  or 

that   any   difference   which    should  policy  of  the  law  which   prp\eiits 

arise  should  be  scttU^l  by  arbitra-  parties  from  entering  into  such   a 

tion,  and  the  Ma-stcr  of  the  Rolls  contract  as  that  no  breach  shall  oc- 

allowed    that    pica.     But    I    think  cur  until  after  a  reference  has  been 

that  ca.se  cannot  bo  relied  upon,  be-  made  to  arl)itration.     It  api>ears  to 

eau.se  it  ha.s  been  universally  treated  me  that,  in  such  cases  as  that,  the 

UH  having  pnjceeded  upon  an  erro-  policy  of  the  law  is  left  untouched." 

neous  principle.     There  is  no  doubt  '  Bartlett  vs.  Bartlett^,  93  N.   W. 

that  where  a  right  of  action  has  ac-  473. 

cnje<l,  parties  cannot  by  contract  '  Evans  vs.  ChainlxT  of  Coin- 
Kay  that  there  shall  not  be  juri.sdic-  merce  of  Minneapolis,  <)1  .\.  W.  S. 
tion  to  enforce  danuitros  in  resport  '  Prentice  vs.  London,  L.  \\.  10  T. 
to  that  right  of  action.  Now,  thi.s  P.  679.  .N'or  can  nn  Kxchange. 
do<-tnne  dep<;nds  upon  the  general  tinder  itH  power  of  "adjusting  con- 
policy  of  the  law,  that  partic-s  can-  troversies    between    its    members" 


142 


Stock-brokers  and  Stock  Exchanges. 


where  the  trustees  or  ollicers  of  an  association  deny  the 
right  of  a  person  to  be  a  member  of  the  society,  they  are 
estopped  from  saying  that  the  dispute  is  one  between  the 
parties,  as  members,  within  the  rule.'  The  matters  in 
disj)ute,  which  are  the  subject  of  reference  and  decision 
under  the  constitution  and  by-kiws  of  associations  and  in- 


and  of  "inculcating  just  and  equita- 
ble principles  of  trade,"  and  in  the 
absence  of  any  reserved  right,  try 
the  title  to  a  disputed  membership 
claimed  by  one  member  under  a  bill 
of  sale  from  another,  and  expel  him 
for  refusing  to  abide  bj'  its  deci- 
sion. "He  had  no  controversy 
with  any  member  or  officer.  He 
said  simply:  'You  cannot  sell  the 
membership  because  it  belongs  to 
me,  and  I  do  not  admit  your  au- 
thority to  dispose  of  my  rights  in 
regard  to  it.'  .  .  .  There  is  no 
provision  in  the  by-laws  for  the 
trial  of  the  title  to  a  seat,  and  there 
is,  therefore,  on  refusing  to  submit 
to  the  decision,  no  violation  of  the 
by-laws."  People  ex  rel.  Elliott 
vs.  N.  Y.  Cotton  Exchange,  8  Hun, 
216. 

In  Babcock  vs.  Merchants'  Ex- 
change of  St.  Louis,  159  Mo.  381,  it 
appeared  that  plaintiff,  who  was  a 
Broker,  and  had  deskroom  in  the 
Exchange  building,  with  tenants  of 
the  Exchange,  who  were  not  mem- 
bers thereof,  purchased  from  a 
member  his  certificate  of  member- 
ship, but  the  E.xchange  had  refused 
to  permit  him  to  become  a  member. 
Thereafter,  notwithstanding  a  reso- 
lution of  the  Exchange,  excluding 
non-members  from  the  "Curb,"  a 
portion  of  the  building  where  mem- 


bers traded  with  each  other  after 
the  regular  session,  he  continued,  as 
he  had  theretofore  done,  to  trade 
in  the  "Curb,"  and  at  the  instance 
of  the  committee  on  irregular  trad- 
ing, was  arrested,  charged  with 
trespass,  and  subsequently  acquit- 
ted. In  an  action  for  damages  for 
malicious  pro.secution,  it  was  held 
that  the  right  of  plaintiff  to  mem- 
bership could  not  be  determined  in 
that  action.  If  his  application  for 
memlDership  were  improperly  re- 
jected, the  courts  were  open  to  him 
in  a  proper  action,  but  even  if  this 
were  done,  he  could  not  go  upon  the 
premises  until  his  right  was  estab- 
lished by  a  competent  court. 

'  Prentice  vs.  London,  L.  R.  10 
C.  P.  679. 

On  the  other  hand,  if  one  not  a 
member  often  visits  the  Board  of 
Trade  on  a  visitor's  ticket,  and  deals 
with  another  a.s  if  he  were  a  mem- 
ber, he  is  estopped  from  denying  that 
he  is  a  member,  and  he  is  bound  by 
the  board's  rules  and  customs.  Chi- 
cago vs.  Tilton,  87  111.  547.  And  a 
non-member  cannot  enjoin  an  Ex- 
change from  fining  one  of  its  mem- 
bers for  breach  of  a  rule  prohibiting 
members  from  dealing  with  non- 
members.  Downes  vs.  Bennett,  63 
Kan.  653. 


Illegal  Rules.  143 

corporations,  as  a  general  rule,  are  only  such  matters  as 
are  in  dispute  between  the  society  and  its  members,  as 
members,  and  not  extraneous  matters  of  any  kind.  Thus, 
where  a  building  society  loaned  money  to  a  member  on 
mortgage  of  leasehold  property,  and  the  member  cove- 
nanted to  observe  and  fulfil  the  rules  of  the  society,  and 
also  to  pay  the  rent  reserved  by  the  lease,  and  the  trustees 
of  the  society  sued  for  breaches  of  both  those  covenants, 
it  was  held  that  as  some  part  of  the  plaintiff's  claim  was 
not  a  matter  in  dispute  between  the  society  and  the  de- 
fentlant,  as  member,  but  only  as  mortgagor,  the  society  was 
not  bound  by  its  rule  to  refer  to  arbitration  the  subject- 
matter  of  the  action.' 

'  Morrison  vs.  Glover,  4  Ex.  430,  in  such  an  action  was  denied  (Ex 
It  is  not  an  unusual  thing  for  the  parte  Payne,  5  D.  &  L.  679).  The 
statutes  incorporating  associations  same  Ls  true  under  the  "Act  to  Con- 
to  oust  the  jurisdiction  of  ordinary  solidate  and  Amend  the  Laws  rela- 
tribunals,  and  to  refer  all  disputes,  tive  to  Savings-banks"  (9  Geo.  IV. 
either  between  the  members  them-  c.  92,  §  45),  by  which  it  was  pro- 
selves  or  between  the  memliers  and  vided  that  any  dispute  arising  be- 
the  association  thereof,  to  certain  tween  the  bank  and  the  depositor 
persons  or  classes  of  persons  named  should  be  decided  by  arbitrators 
by  the  statute,  whose  jurisdiction  is  appointed  in  the  manner  provided 
exclusive  and  whose  decision  is  final .  by  the  statute.  It  was  held  that 
Thus,  the  statute  of  6  &  7  William  the  right  of  a  depositor  to  bring  an 
IV.  c.  32,  incorporating  the  provi-  action  in  a  court  of  law  for  any  mat- 
sions  of  10  Geo.  IV.  c.  56,  relating  ter  coming  witliin  the  purview  of  the 
to  the  fonnatioii  of  friendly  .socic-  provisions  of  the  .statute  w;i.s  liarrod 
ties,  provides  that  rules  shall  be  by  the  .statute;  and  it  was  held  that 
made  by  such  .societies  directing  the  language  of  the  .statute,  which 
whether  disputes  .shall  be  settled  wits  that  "the  matter  .so  in  dispute 
either  by  jitstices  of  the  peace  or  by  ^/i«//  be  referred,"  etc.,  gave  the  ar- 
a^^>it rators ;  and,  when  niles  have  bitrators  an  exclusive,  and  not 
been  adopted  to  that  effect,  it  hits  merely  (-oncurrent,  jurisdiction 
been  held  that  any  decision  made  (Crisp  vs.  Huiil)ury,  S  Hiiig.  301). 
by  such  ju.sticfs  of  the  pea<'e,  or  by  (This  \M\  sectir)ii  of  the  act  is 
Huch  arbitrators,  was  fmal,  and  a  <tmitte<l  in  the  edition  uf  the  Stat- 
nile  for  a  mandamus  to  compel  the  utes  of  IS75.)  So  in  the  .Vet  rela- 
judge  of  the  county  court  to  procee<l  tive  to  Loan  Societies  (5  it  6  \\in. 


144 


Stock-lnokers  and  Stock  Exchjini'es. 


IX.  Liability  ot  Seats  in  Excbange  to  Legal  Process. 

The  general  nature  of  seats  in  an  unincorporated  Stock 
Exchange  has  ah-eady  been  considered  in  Section  \ .  of  this 
chapter,  and  we  have  seen  that  its  members  have  no  sepa- 
rate or  severable  interest  in  its  property,  and  no  right  to 
call  for  an  account  of  the  same,  or  its  accunmlations,  with 
a  view  of  dividing  it,  as  in  the  case  of  ordinary  ])artners. 

The  question  now  is,  as  to  the  right  of  outside  creditors 
to  attach  or  seize  this  seat,  upon  attachment  or  execution, 
to  satisfy  their  claims.^ 


IV.  c.  23,  §  8),  it  was  provided  that 
all  notes  and  securities  entered  into 
for  the  payment  of  loans  might  be 
prosecuted,  upon  default,  by  the 
treasurer;  and  that  it  should  be  law- 
ful for  one  or  more  justices  of  the 
peace  to  summon,  etc.,  the  person 
complained  of,  etc.  In  construing 
this  statute,  it  was  held  that  the 
jurisdiction  of  the  higher  courts 
was  ousted,  if  not  bj''  the  express 
words  of  the  statute,  at  least  by 
implication  (Timms  vs.  Williams,  3 
Q.  B.  413;  but  see,  contra,  Albon  vs. 
Pyke,  4  M.  &  G.  421,  and  note,  426). 
And  where  a  bill  in  equitj'  was 
brought,  by  a  holder  of  shares  in  a 
building  society,  against  the  society 
and  its  directors,  for  misconduct, 
and  praying  a  declaration  that  the 
plaintiff  was  not  bound  by  certain 
rules,  etc.,  it  was  held  that  this  was 
a  dispute  for  the  decision  of  which 
arbitrators  were  the  proper  author- 
ity under  the  statute  of  the  socie- 
tys'  incorporation  C6  &  7  Wm.  IV.  c. 
32'>;  and  that  it  was  not  only  pro- 
vided by  the  statute  that  such 
disputes  should  be  referred  to  arbi- 


tration, but  that  it  was  against  the 
policy  of  the  law,  as  shown  by  the 
statute,  to  drag  the  disputes  of 
friendly  benefit  societies  into  the 
courts,  etc.  (Thompson  vs.  Planet 
Benefit  Building  Soc,  15  L.  R. 
Eq.  333).  But  the  jurisdiction  of 
the  superior  courts  is  only  to  be 
ousted  by  express  words,  or  bj' 
neces.sary  implication  (Gates  vs. 
Knight,  3  T.  R.  442;Grisp  vs.  Bun- 
bury,  S  Bing.  394;  and  Albon  vs. 
Pyke,  supra). 

'  The  rules  of  the  New  York 
Stock  Exchange  provide  as  follows, 
in  relation  to  seats: 

Art.  XIII.  §  1,  states  the  qualifi- 
cation of  the  member.  Art.  XI. 
§  1,  subd.  2,  provides  for  the  admis- 
sion of  members  by  two  thirds  of  the 
committee  on  admissions.  Any 
member  wishing  to  transfer  his 
membership  shall  submit  the  name 
of  the  proposed  transferee  to  the 
Gommittee  on  Admissions;  and,  on 
the  approval  of  two  thirds  of  said 
committee,  the  transfer  may  be 
made,  upon  payment,  out  of  the 
proceeds  of  the  transfer,  of  fines,  as- 


Seats  Liable  to  Legal  Process.  145 

In  the  first  place,  it  will  be  observed  that,  as  between 
the  owner  or  member  and  the  association,  the  seat  is  re- 
garded, and  has  been  recognized,  as  a  right  or  property  of 
a  valuable  nature,  subject  to  taxation  as  personal  property,* 
of  which  the  owner  cannot  be  deprived,  except  in  accord- 
ance with  the  rules  of  the  organization,  and  that  a  court 
will  interfere  by  an  injunction,  or  other  appropriate  legal 
remedy,  to  prevent  such  deprivation. 

But,  on  the  other  hand,  it  is  equally  well  settled,  as  we 
have  seen,  that  the  ownership  of  a  seat  in  such  association 
is  not  absolute  and  unqualified,  but  it  is  limited  and  re- 
stricted by  the  rules  of  the  body  issuing  the  same.*  The 
owner  cannot  sell  the  seat  to  a  person  whom  the  body  will 
not  recognize.^  He  cannot  devise  or  bequeath  the  same, 
so  that  his  heirs  or  personal  representatives  will  be  able  to 
use  and  enjoy  it  as  the  testator  has,  for  the  seat  is  a  mere 
persoiud  privilege,  dying  with  the  member,  and  not  con- 
taining any  inheritable  qualities/  The  proceeds  of  his  seat, 
it  is  true,  may  belong  to  his  personal  representatives,  but 


sessments  and  unsettled  contracts,  of  the  vendor  subject  to  the  rules 

due  by  the  member  (Art.  XV.),  the  and   conditions   of   the   Exchange, 

balance,  if  any,  to  be  paid  to  the  And,   therefore,   if   a  certificate   of 

member.     Id.     Upon  the  death  of  membership  is  transferred,  tlie  only 

a  member,  hi.s  membership  may  be  way  the  transferee  ran  avail  of  it,  if 

dLsp<jsed  of  by  said  committee  (Art.  refused    meniliership,    is   by   trans- 

XV.    §  7).  ferring   it,    for   a   consideration,  to 

Elaborate  provision  is  also  made  some  person  desiring  incinborship. 

for  the  suspension  and  readmission  American  Live  Stock  Co(nm.  Co.  vs. 

and  expulsion  of  members.  Live  Stock  Exchange,  113  111.  210; 

>  See  post,  p.  163.  Clute  vs.  Loveland,  CS  Cal.  254,  and 

'See  ante,  p.  31.  cusos  cited,  ante. 

'  Whitevs.  Hn)\vnell,3Ab.  Pr.  (II.         «  White  vs.   HrowiiHI.  :\   .\b.    IV 

H.)  31S;  Leech  vs.  IL-irris,  2  Hrews.  (n.    s.)    31.S;    Leech    vs.    Harris,    2 

(Pa.)  ri7l.     \uy  disposition  of  the  Hrews.   (Pa.)  571. 
Hcat  gives  merely  the  rights  therein 

10 


14G  Stock-brokers  aud  Stock  Exchanges. 

the  franchise  or  right  of  exercising  the  occupation  of  Bro- 
ker in  the  Exchange  is  gone. 

]\[oreover,  a  member  may  be  entirely  deprived  of  the 
benefits  and  value  of  the  seat  by  a  violation  of  the  rules  of 
the  association,^ 

A  seat,  therefore,  in  one  of  these  bodies,  is  a  species  of 
incorporeal  property — a  personal,  individual  right  to  exer- 
cise a  certain  calling  in  a  certain  place,  but  without  the  at- 
tributes of  descendibility  or  assignability  which  are  charac- 
teristic of  other  species  of  jjroperty.^  It  is  not  a  chose  in.  ac- 
tion.' It  does  not,  in  New  York,  constitute  the  working 
tools  of  the  member  so  as  to  exempt  it  from  judgment 
creditors,  and  even  if  it  did,  it  would,  under  §  1391  of 
the  Code  of  Civ.  Proc,  be  exempt  only  to  the  extent  of 
$250.-« 

By  far  the  most  numerous  class  of  cases  in  which  the  le- 
gal character  of  seats  has  arisen  are  those  in  which  seats 
have  been  sought  to  be  attached  or  seized  on  execution  by 
creditors  of  an  insolvent  member.  Cariying  out  the  princi- 
ples just  alluded  to,  the  courts  have  uniformly  ^  held  that  the 

'  Ritterband  vs.  Baggett,  -1  Ab.  ber  in  good  standing  maj'  dispose  of 

New  Cas.  67,  Sp.  T.      And  the  asso-  his  seat,  subject  to  the  rules, 

ciation  may  then  fill  the  vacancy  or  ^  Compare,    as    to    character    of 

not  as  it  pleases.     Belton  vs.  Hatch,  market-stands,  Barry  vs.  Kennedy, 

109  N.  Y.  593.     In  that  case  a  dis-  11  Ab.  Pr.  (n.  s.)  421;  In  re  Emrich, 

tinction  is  made  between  the  case  of  101    Fed.    Rep.    231.     And    as    to 

an  expelled  member  who  is  iueligi-  auction-stand  in  a  real  estate  Ex- 

l)le  for  readmission,  and  a  member  change,  McQuillen  vs.  Ileal  Estate 

who  becomes  honestly  insolvent  and  Exchange,  15  X.  Y.  Supp.  206. 

fails  to  qualify  for  readmission.     In  '  London   and  Canadian  Co.   vs. 

the  former  case  the  member  is  de-  Morphy,  10  Ont.  86. 

prived  of  all  claim  upon  the  associa-  ♦  Leggett  vs.   Waller,   80   N.   Y. 

tion,  but  in  the  latter,  the  proceeds  Supp.    13. 

of  the  seat  may  be  paid  to  the  mem-  *  See,  however,  Leggett  vs.  Wall- 

ber  after  all  claims  of  the  associa-  ers,  supra, 
tion  are  discharged.     And  a  mem- 


Seats  Liable  to  Legal  Process.  147 

right  of  a  member  to  a  seat  in  a  Stock  Exchange  cannot 
be  attached^  or  seized  on  execution. '~' 

By  the  rules  of  the  rhiUidelphia  Stock  Exchange,  it  was 
provided  that  a  member  might  sell  his  seat  to  any  person 
whom  the  association  should  elect ;  that  the  proceeds  of  such 
sale  shall  belong  to  the  creditors  of  the  owner  who  are  mem- 
bei-s  of  the  association,  and  the  balance,  after  paying  their 
claims,  shall  go  to  the  owner.  The  court  held  that  such 
seat  was  not  properly  subject  to  execution  in  any  form.  It 
was  a  mere  perst>nal  [)rivilege  ;  perhaps,  more  accurately,  a 
license  to  buy  and  sell  at  the  meetings  of  the  board.  It  cer- 
tainly could  not  be  levied  on  and  sold  under  a^. /a.  The 
sheriff's  vendee  would  ac(juire  no  title  which  he  could  en- 

'  Pancoa^st  vs.  Houston,  Phila.  C.  the    Exchange    having   been    first 

P.  17  Mb.  L.  J.  172;  s.  c.  5  Week,  paid? 

Notes  Cas.  36.     The  court  held  that       In  Bowen  vr,.  Bull,  12  N.  Y.  Supp. 

until   all   claims   of   members  were  325,  aff'd  without  opinion,  128  N. 

settled  the  seat  was  the  property  of  Y.  507,  it  appeared  that  an  attach- 

the    Exchange,   and    until    it    was  ment  had  been  issued  against  a  seat 

shown  that  such  claims  were  settled  in  the  Open  Board  of  Brokers,  and 

or  that  none  exLstetl,  an  attachment  the  court,  without  deciding  whether 

could  not  issue.     It  appeared  that  a  seat  in  the  stock  exchange  was 

some    claims    existed    against    the  capable  of   attachment,    held  that 

seat,   and   it   might  be  contended  as  there  was  no  proof  of  the  levy,  a 

that  if  no  claims  existed,  the  seat  purchaser  at  a  sheriff's  sale  could 

could  be  attached.     But  in  face  of  not  compel   the   Exchange   to  rcc- 

the    rule  of    the    Exchange   that  a  ognize  his  right  to  the  .scat, 
member  could  only  sell  his  member-        '  Freeman     on     Executions    (3d 

ship  upon  condition  tliat  the  pur-  ed.),  p.  422;  Pancoa.st  vs.  Ciowcn,  20 

chaser   w:ls   first  Itallottcd   for  and  .\llj.  L.  J.  11  1 ;  s.  c.  30  Phil.  Leg.  Int. 

elected,  and  that  all  claims  of  the  SO;  Lowenberg  vs.  (Jreencbaun,  99 

association  had  been  paid,  this  con-  Cal.  1(52;  Eliot  vs.  Merchant.s'  Ex- 

t«ntiori  could  hardly  be  sustained,  change,  14  Mo.  App.  235;  Barclay 

Qua-re,     Could    an    intending   pur-  vs.   Smith,    107   111.    349;    Fish   vs. 

chaser  at  an  executifjn  sale,  following  Fiske,    1.54    Mass.    .302.     The    rule 

judgMJcnt    upon     the     attachment,  also    prevails    in    Canada.     London 

be   first    ballotte<i    f«)r  and  elected,  and  ('anadian  Loan  Co.  vs.  Morphy, 

and    then    have    a   transfer  nf    the  10(  )nt.  Hep.  SO.    Sceal.so  Ilabenicht 

»cat   by    the  HherifT,   all  claims  of  vs.  Lis.sak,  78  Cal.  351. 


148  Stock-brokers  and  Stock  Exchanges. 

force.  Nor  is  it  within  either  the  words  or  the  spirit  of 
the  act  of  June  10,  1830,  §  35  (Paniph.  L.  707),  providin*,' 
for  attachment  on  judgments. 

"  AVhether/'  says  the  court,  "  the  proceeds  of  the  sale  of 
the  seat,  in  the  hands  of  the  treasurer  of  tlic  board,  and 
payable  to  the  defendant,  according  to  the  regulations  and 
by-laws  of  the  board,  could  be  thus  reached,  is  an  entirely 
different  question.  This,  and  no  more,  is  what  we  under- 
stand to  have  been  decided  by  the  Supreme  Court  of  the 
United  States,  in  Hyde  vs.  Woods,*  where  Mr.  Justice  Miller 
says :  "  If  there  had  been  left  in  the  hands  of  the  defendants 
any  balance  after  paying  the  debts  due  to  the  members  of 
the  board,  that  balance  might  have  been  recovered  by  the 
assignee  in  bankruptcy."  ^ 

The  case  of  Tlionipson  vs.  Adams  ^  is  another  interesting 
case  on  this  subject,  holding  that  a  third  person,  secretly  fur- 
nishing money  to  a  member  to  purchase  his  seat,  has  no  claim 
for  the  money  until  after  the  debts  are  paid  to  the  members 
of  the  board.  The  Supreme  Court  of  Pennsylvania  held,  in 
that  case,  that  a  seat  in  the  Philadelphia  Board  of  Brokers 
was  not  property  in  the  eye  of  the  law,  and  could  not  be 
seized  in  execution  for  the  debts  of  the  members  ;  it  was  the 
mere  creation  of  the  board,  and  was  to  be  held  and  enjoyed 
with  all  the  limitations  and  restrictions  which  the  constitu- 
tion of  the  board  have  put  upon  it ;  and,  under  the  consti- 
tution and  by-laws  of  the  Philadelphia  Board  of  Brokers, 
the  secret  equitable  owner  of  a  seat  therein  has  no  right  as 
against  members  of  the  board,  who  are  creditors  of  the  legal 
owner,  to  share  in  the  proceeds  of  the  sale  of  the  seat  on  the 

'  4  Otto,  525.  '7  Weekly  Notes  of  Cas.  281. 

'  Pancoast  vs.  Gowen,  20  Alb.  L. 
J.  414;  s.  c.  93  Pa.  St.  66. 


Seat«  Liable  to  Lei?al  Process.  149 

death  of  the  latter.  The  plaintiff  in  that  case  was  not  a  mem- 
ber of  the  board,  but  had  furnished  the  money  by  which  the 
deceased  member  had  obtained  his  seat,  but  phiintiti's  name 
was  not  known  to  the  board  in  connection  with  the  seat. 
The  rules  of  the  board  provided  that  all  claims  upon  the 
seat  of  a  dead  member  should  be  decided  by  the  Arbitration 
Committee,  and  such  claims  were  so  passed  upon  in  this  case. 
The  court  said  :  "  His  [plaintiff's]  contention  is  that  he  was 
the  equitable  owner  of  the  seat,  and  had  title  to  what  was 
received  for  it,  and  that  the  defendant  had  no  right  to  apply 
the  proceeds  to  debts  due  by  Richards  to  other  members,  in 
pursuance  of  the  terms  of  the  constitution  of  the  club.  But 
why  not?  Richards  was  the  member  of  the  board,  the  legal 
owner  of  the  seat,  and  the  plaintiff  an  entire  stranger,  un- 
known to  the  association.  The  members  gave  credit  to 
each  other  in  part,  no  doubt,  upon  the  faith  of  the  liability 
of  a  member's  seat  to  them  for  his  debts.  There  is  nothin": 
unlawful  or  unreasonable  in  this  regulation."^ 

In  Evans  vs.  Wister^  the  same  court  held  that  an  attach- 
ment would  not  lie  against  the  Board  of  Brokers  for  the 
proceeds  of  the  sale  of  a  seat  of  a  member,  he  being  indebted 
to  his  fellow-members  to  the  amount  of  the  proceeds.  In 
that  case  one  W.,  being  a  member  of  the  board,  became  in- 
solvent. Subsequently  he  sold  his  seat,  but  the  purchaser 
was  informed  by  the  secretaiy'  lliaL  tlie  transfer  could  not 
be  completed    until    the    j)i-ice  of  the   seat    was    j)ai(l    to 

'  In  Clute  vs.  Loveland,  68  Cal.  imposed  \>y   llic    rules  of  the  ilsso- 

2.54,  it  waa  held  thut  u  nieniljer  (if  elation. 

the  San  Fraiiciwco  Stock  K.\<)iaiij;e        '  1  Week.  Note.s  of  Cius.  ISl ;  s.  e. 

had  power  to  plo<ine  or  rnortna^e  hJH  32    I.e^.    Int.    '.iry\;  h.   e.   svb   nom. 

Beat,    and    that    the    lien    tlierchy  Evans  vs.  .\danis,  81    Pa.  St.   (32 

crcatw]  may  \>c.  foreclosed  and  the  Sm.)  413. 
Beat  HoUi,  hiilijfcf  to  the  condilioua 


150  Stock-brokers  and  Stock  Exchaupes. 

him,  to  be  held  for  the  creditors  of  W.  in  tlie  board.  Plain- 
tiff then  presented  his  chiini  to  the  Arbitration  Committee, 
but  the  same  was  disallowed,  lie  thereupon  began  a  suit, 
attaching  the  money  in  the  hands  of  the  secretary,  with 
the  above  result.^ 

In  the  suit  of  the  Grocers  Bank  vs.  IMurphy,  Mr.  Justice 
Van  lloesen,  in  the  ISew  York  Court  of  Common  Pleas,^ 
passed  upon  the  question  whether  a  seat  in  the  New  York 
Stock  Exchange  may  be  regarded  as  property  subject  to 
sale  by  legal  process  against  the  owmer.  An  execution  in 
this  case  was  issued  upon  a  judgment  in  favor  of  plaintiff, 
and  subsequently  an  order  was  granted  requiring  the  de- 
fendant to  appear  before  the  court  to  make  discovery  on 
oath  concerning  his  proper t}-,  etc.,  under  section  292  of  the 
Code  of  Procedure  ;  and,  it  appearing  that  the  defendant 
possessed  a  seat  in  the  Xew  York  Stock  Exchange,  plaintiff 
asked  to  have  it  assigned,  and  the  proceeds  applied  towards 
the  satisfaction  of  his  judgment.  The  court,  in  denying  a 
motion  requiring  defendant  to  make  the  assignment,  said, 
"  There  is  no  doubt  if  a  seat  be  sold,  the  proceeds  of  the  sale, 
after  the  payment  of  claims  due  to  members  of  the  board, 
may  be  reached  by  proi)er  process.  This  is  the  view  of  every 
court  which  has  had  occasion  to  express  an  opinion  on  the 
subject.  It  by  no  means  follows,  however,  that  the  seat  itself 
may  be  seized  by  the  sheriff,  or  taken  possession  of  by  a  re- 
ceiver. It  may  well  be  doubted  if  a  seat  in  the  Exchange 
be  property.^     It  is  true  that  Mr.  Justice  Miller,  of  the 

*  This  was  an  affirmance  of  Leech  opinion  of  Van  Brunt,  J.,  is  also  re- 
vs. Leech,  3  Week.  Notes  of  Cas.  ported;  s.  c.  11  N.  Y.  Weekly  Dig. 
542,  note.  538;  60  How.  Pr.  426. 

'  N.  Y.  Daily  Reg.  June  14,  1880;  '  The  Xew  Yori<    Court  of  Ap- 

re versed  on  appeal,  X.  Y.  Da i/y  7?^^.  peals  has,  however,  since  the  te.\t 

March   12,   1881,  where  dissenting  was  written,  held  that  a  seat  in  the 


Seats  Liable  to  Lei?al  Process.  151 

Supreme  Court  of  the  United  States,  in  the  case  of  Hyde  vs. 
Woods/  said  that  he  thought  it  was  property  ;  but  the 
Supreme  Court  of  Pennsylvania,  in  two  carefully  considered 
decisions,  in  which  the  decision  of  Mr.  Justice  ^liller  was 
thoroughly  reviewed,  came  to  the  opposite  conclusion.  .  .  . 
A  seat  in  the  Exchange  does  not  fall  within  any  of  the 
classes  into  which  the  subjects  of  property  are  divided.  It 
is  not  capable  of  manual  delivery  or  appropriation  ;  it  is 
not  a  domestic  animal,  nor  a  product  of  labor  or  skill,  nor 
a  right  created  by  statute." 

But,  upon  appeal,  this  decision  was  reversed  by  two  of  the 
judges,  the  third  judge  dissenting,  and  coinciding  with  Mr. 
Justice  Van  Iloesen.- 

Mr.  Justice  Beach,  in  delivering  the  opinion  reversing  the 
decision  of  the  court  below,  after  reviewing  the  cases,  held 
that,  under  the  section  of  the  code  in  question,  the  defend- 
ant was  bound  to  apply  the  proceeds  of  the  seat  to  the  satis- 
faction of  his  debts ;  and  that  if  this  result  were  not  correct, 
the  legal  principle  which  makes  the  debtor's  possessions 
liable  to  his  creditors  would  be  nullified.  "  Probably  an 
order  appointing  a  receiver,  containing  directions  for  the 
judgment  delHor  to  do  whatever  may  be  deemed  needful  to 
transfer  the  seat  under  the  rules  of  the  Exchange,  would 
accomplish  the  result  sought."  In  another  ciise  ^  a  peremp- 
tory mandamus,  directed  to  the  defendant,  compelling  it  to 
transfer  to  the  relator,  who  had  purchased  the  same  at  a 
sheriff's  sale,  a  seat  in  the  Cotton  Exchange,  was  refused 

New  York  Stock  ExchanRe  is,  in  a  '  .\.    Y.    Daily    Ifcg.    .Mjirch    12, 

certain  sciwo,   property  and  pa-sses  18S1 ;  00  How.  Pr.  426. 

to  the  member's  aKsi(n>c  •  in  bank-  *  Allen,   Jr.,    vb.   The   New   York 

ruptoy.     Piatt  vs.  Jones,  96  N.  Y.  Cotton    ExohanRe,    N.     Y.     Daily 

24,  20,  and  cascw  cited.  licK  ,  March  .H ,  1880. 
'  94  U.  8.  (4  Otto)  523. 


152  Stock-brokers  and  Stock   Exchanges. 

upon  the  grounds  heretofore  adverted  to  in  the  preceding 
cases.  If  the  seat  were  subject  to  direct  legal  process,  it  is 
very  evident  that  the  whole  design  of  the  organization 
would  be  thwarted  by  introducing  into  the  Exchange  the 
purchasers  at  a  judicial  sale,  without  a  compliance  with  the 
prerequisite  rules  of  admission  and  against  the  wish  of  the 
regular  members.  This  the  courts  have  uniformly  refused 
to  do.' 

But  the  courts,  through  the  instrumentality  of  their  equity 
powers,  or  by  process  in  aid  of  execution,  will  compel  an  in- 
solvent member  to  sell  his  seat  to  some  person  whom  the 
association  will  recognize,  and  apply  the  proceeds  to  the 
satisfaction  of  his  debts.  It  would  be  a  failure  of  justice  to 
allow  an  insolvent  to  bo  the  possessor  of  such  a  valuable 
right  or  property,  to  the  defiance  of  his  just  creditors.'^ 

So,  in  a  case"  where  a  receiver  instituted  an  action  to 
compel  a  debtor  member  of  a  Produce  Exchange  to  convey 

'  See  in  this  connection  McCabe  which  defendants  have  no  present 
vs.  Emmons,  109  N.  Y.  665.  interest."     89  N.  Y.  332,  333.     The 

^  Text  commended,  Eliot  vs.  Mer-  latter  case  of  Smith  vs.  Barclay  was, 
chants'  Exchanjxe,  14  Mo.  App.  however,  reversed  in  Barclay  vs. 
242,  243.  These  views  have  also  Smith,  107  111.  349,  in  which  it  was 
since  received  confirmation  in  New  held  that  a  certificate  of  member- 
York  in  Powell  vs.  Waldron,  89  N.  ship  in  the  Board  of  Trade  was  not 
Y.  328,  and  in  Illinois  in  Smith  vs.  property.  See  page  154,  note  1,  as 
Barclay,  21  Am.  L.  Rep.  (n.  s.)  408,  to  criticism  of  this  decision  which  is 
where  the  subject  is  fully  discussed,  contrary  to  all  the  authorities, 
and  the  views  herein  expressed  are  And  in  a  later  case  the  Supreme 
endorsed.  Court,    of    New    Jersey    held    that 

In  the  former  case  Judge  riiich  in  courts  of  law  will  interpose  to  con- 
deciding  the  cause  said:  "Whether  trol  the  proceedings  of  ecclesiastical 
he  (the  receiver  of  the  member's  bodies  when  a  right  to  property  is 
estate)  could  make  it  available,  or  involved,  but  in  no  other  instance 
in  what  manner  convert  it  into  (State  of  New  Jersey  vs.  Rector  of 
money  or  how  it  might  prove  to  be  Trinity  Church,  28  Alb.  L.  J.  111.) 
encumbered  under  the  rules  of  the  '  Ritterband  vs.  Baggett,  4  Ab. 
Exchange,    are  after    questions   in    New  Cas.  67. 


Seats  Liable  to  Legal  Process.  153 

his  seat  to  a  member-elect,  with  whom  the  receiver  might 
contract  for  its  sale,  the  court  said  : 

'"The  appointment  of  plaintiff  as  receiver  of  Baggett, 
made  in  the  sup])leinental  proceedings  under  the  code,  vested 
in  him  the  legal  title  to  all  the  personal  property  of  Baggett. 
By  force  of  the  statute,  Code  298,  the  receiver  of  the  judg- 
ment debtor  is  subject  to  the  direction  and  control  of  the 
court  in  which  judgment  was  obtained  upon  which  the  pro- 
ceedings are  founded.  This  action  was  commenced  by 
leave  granted  by  this  court,  and  the  receiver's  appoint- 
ment confers  upon  him  the  right  to  make  discovery,  on 
defendant's  oath,  of  all  his  property.  I  am  of  the  opinion 
that  the  seat  in  the  Cotton  Exchange  was  an  incorporeal  right 
which  Baggett  had  at  the  time  he  became  bankrupt,  and 
was  in  the  fullest  sense  property,  and  that  the  franchise  and 
privileges  secured  to  the  Exchange  by  its  charter  and  high 
price  of  the  initiation  fee  show  that  it  was  valuable  property. 
Nor  can  I  doubt  that  had  there  been  no  su[)plemental  pro- 
ceedings under  which  a  receiver  was  appointed  it  would 
have  passed,  subject  to  the  rules  of  the  Cotton  Exchange, 
to  his  assignee  in  bankruptcy  ;  and  if  there  had  been  left 
in  the  hands  of  the  members  of  the  board  any  balance, 
after  paying  the  debts  due  to  the  members,  and  all  j)eiudties 
and  charges,  that  balance  might  have  been  recovered  by 
the  assignee.  The  (juestion  whether  the  seat  in  the  board 
wa.s  property  has  been  fully  settled  in  a  late  case,  almost 
if  not  entirely,  identical  with  the  ca.se  at  bar.'  Tiio  ques- 
tion being  settled  that  the  seat  in  (|uestion  is  property  of 
value,  I  tliink  it  is  tlic  duty  of  the  court  to  enforce  its  trans- 
fer for  the    plaintill's   licnrlit    in   this  nction,   cithci' to  a  ro- 

'  Hyde   vh.   WcmxIh,  >H    I' .  H.   (4     Kiitoii,   «l    U.   S.   71(i,   followed   in 
Otto)    .524.     See   ubo    .Nichols     vs.    Spjirhawk  V8.  Yerkcs,  I  J2  U.  S.  1. 


154  Stock-brokers  and  Stock  Excliiiuges. 

ceiver  or  to  a  third  person  qualified  to  woi-k  out  the  designs 
of  the  law.  AVe  have  seen  that  the  personal  estate  of  the 
debtor  becomes  vested  in  tiie  receiver  from  the  time,  and 
by  virtue,  of  his  ap[)ointment.  The  entry  of  the  order 
appointing  the  receiver  places  the  title  of  all  the  personal 
property  in  him.  The  provisions  of  the  Code  relating  to 
supplemental  proceedings  were  enacted  for  the  purpose  of 
making  the  property  of  the  debtor  available  assets  in  his 
hands  to  pay  his  debts.  By  a  by-law  of  the  Exchange  this 
property  cannot  be  assigned  to  any  one  but  members  and 
to  members-elect.  It  cannot,  therefore,  be  assigned  to  the 
receiver,  as  he  is  neither  a  member  nor  a  member-elect. 
If  this  property  cannot  be  reached  by  the  receiver  unless 
some  mode  is  presented,  the  object  and  intention  of  the 
Code  become  not  only  a  dead  letter,  but  lifeless  in  spirit. 
Rights  of  property,  from  time  immemorial,  could  be  reached 
by  a  creditor's  bill ;  and  it  is  now  Avell  settled  that  the 
same  result  may  be  accomphshed  by  proceedings  under  the 
Code,  w^hicli  furnish  a  substitute  for  that  proceeding  in 
chancery.  Personal  property  passes  to  the  receiver  with- 
out assignment ;  but  if  an  asssignment  be  necessary  to  effect 
the  purpose  of  the  law  I  do  not  question  the  power  of  the 
court  to  direct  it  to  be  done.  I  therefore  direct  an  assign- 
ment to  be  made  to  Mr.  Covas  or  some  other  competent  and 
fit  member  of  the  Cotton  Exchange,  with  apt  and  proper 
directions."  ^ 

*  To  same  effect  are  Londheim  vs.  see  cases  cited  post,  pp.  156-160, 
White,  67  How.  Pr.  467;  Roome  vs.  under  the  bankruptcy  law. 
Swan,  2  X.  Y.  Supp.  614;  Habenicht  A  seat  in  the  New  York  Consol- 
vs.  Lessak,  78  Cal.  351;  EHot  vs.  idated  Stock  and  Petroleum  Ex- 
Merchants'  Exchange,  14  Mo.  App.  change  will  pass  to  a  receiver  in  sup- 
234;  London  and  Canadian  Loan  plementary  preceedings.  If  there 
Ccvs.Morphy,  lOOnt.  Rep.86,  and  are  debts  due  to  the  members  of 


Seats  Liable  to  Le£:al  Process,  155 

The  seat  may  be  pledgeil  to  secure  a  loan,  and  the  lien 
may  be  enforced  without  a  foreclosure.^  And  if  the  seat 
has  been  pledged  as  collateral  for  a  loan  the  receiver  has  the 
right  to  redeem  it.'- 

In  Massachusetts  a  creditor  may,  under  Pub.  Stat.  ch.  151, 
§  2,  cl.  11,  and  St.  of  1884,  ch.  285,  §  1  (now  Rev.  L.  ch.  159, 
§  3,  cl.  7),  bring  a  bill  in  equit}'  to  reach  property  which  can- 
not be  attached  or  taken  in  execution.  It  has  been  held 
that  the  bringing  of  a  bill  in  equity  under  this  statute  to 
compel  the  sale  of  a  seat  in  the  Boston  Stock  Exchange,  did 
not  give  the  plaintiff  such  a  lien  on  the  property  as  would 
prevent  it  passing  to  the  assignee  in  insolvency  of  the  debtor, 

the   Exchange,   the  receiver  takes  by  creditor's  bill  to  the  payment  of 

the  equitable  interest  of  the  judg-  his  debts.     Smith  vs.  Barclay,  107 

ment  del)tor  in  it.     Leggettvs.  Wal-  111.  349;  Weaver  vs.  Fisher,  110  111. 

ler,  80  X.  Y.  Supp.  13.  146. 

In  Roome  vs.  Swan,  supra,  it  was  The  doctrine  of  these  cases  is 
held  that  the  debtor  would  not  be  severelj'  criticised  in  au  article  in  22 
required  to  si-^n  a  consent  that  the  Am.  L.  Reg.  (n.  s.)  438,  and  un- 
purchiLser  take  his  seat  or  to  for-  doubtedly  "the  weight  of  authority 
mally  resign  and  nominate  the  pur-  and  the  better  reasoning  support 
cha-ser  as  his  succe.ssor  (these  for-  the  proposition  that  such  a  seat  or 
malities  being  required  by  the  niles  membership  is  property  and  should 
of  the  Exchange)  the  sale  and  pur-  be  applied  as  other  property  of  a 
chase  at  law  being  equivalent  to  debtor  to  the  payment  of  his  debts, 
these,  but  he  would  be  required  to  To  hold  that  it  cannot  be  thus  ap- 
sign  a  con.sent  that  the  purcha.ser  be  plied  would  establish  a  rule  giving 
vested  with  the  rights  and  privi-  to  the  meinbei-s  of  such  jUNSociations 
leges  einiring  to  memljcrship.  .\nd  the  power  to  invest  fortunes  under 
a  banknipt  nieniber  will  ])c  com-  the  name  of  licenses  and  j)riviloges, 
polled  in  equity  to  execute  any  in-  and  by  their  constitutions  and  rcgu- 
htnjment  necessary  to  complete  the  hitifins  to  establish  a  law  for  the  ex- 
transfer  of  title  to  a  purcha.scr  from  emption  of  the  same."  Habenicht 
the  aasignoe.  Piatt  vs.  Jones,  90  vs.  Lessak,  7S  Cal.  357. 
N.  Y.  24.  '  Nitshua   Savings   Bank  vs.  Ab- 

In  Illinois,  however,  it  has  been  bott,  03  X.  E.  fMa.ss.)  lO.W. 

held  lh;tt  II  eertificnte  of  nieinluT-  '  Powell  VS.  Waldron,  89  N.  Y. 

ship  in  a  eominerrial   Exchange  in  328, 
not  propcrrty  liable  to  l)o  subjected 


156  Stock-brokers  and  Slock  Exchanges. 

and  that  when  the  latter  made  an  assignment  pending  an 
appeal,  the  proceeds  of  the  sale  of  liis  seat  passed  to  his  as- 
signee.' 

If,  however,  after  the  seat  has  been  pledged  to  secure  a 
loan,  and  the  death  of  the  member,  the  seat  has  been  sold 
under  the  rules  of  the  Exchange  and  the  proceeds  paid  to 
the  member's  administrator,  the  lien  subsists  and  holds  the 
proceeds  of  sale  in  the  administrator's  hands,  when  the  seat 
was  sold  with  notice  to  the  Exchange  and  to  the  adminis- 
trator of  the  claim,  and  the  short  statute  of  limitations  did 
not  bar  a  claim  under  the  lien.^ 

In  another  case  in  Massachusetts  it  appeared  that  a  seat 
in  the  Boston  Stock  Exchange  was  purchased  b}'^  a  firm  of 
stock-brokers,  but  the  membership  was  taken  in  the  name  of 
one  of  the  two  persons  composing  the  firm,  the  rules  not 
allowing  partnerships  to  become  members.  The  firm  failed, 
and  afterwards  the  members  of  it  did  no  business  together, 
but  no  formal  dissolution  or  settlement  of  the  firm  affairs 
was  made.  Fifteen  years  subsequently  the  member  who 
held  the  seat,  and  who  afterwards  occupied  it  for  the  trans- 
action of  his  private  business  only,  sold  the  seat,  and  his 
former  copartner  sued  him  for  a  moiety  of  the  proceeds, 
and  it  was  held  that  the  statute  of  limitations  was  a  bar  to 
the  plaintiff's  claim.^ 

In  the  bankruptcy  courts  the  same  doctrine  has  been 
adopted.     In  the  matter  of  Ketcham,  bankrupt,*  on  an  ap- 

*  Fish  vs.  Fiske,  154  Mass.  302.  Rep.  840;  cited  and  the  conclusions 

^  Nashua  Bank  vs.  Abbott,  63  N.  approved  in  the  case  of  Grocers' 

E.  (Mass.)   1058.  Bank  vs.  Murphy,  N.  Y.  C.  P.  11 

3  Currier  vs.  Studley,   159  Mass.  N.  Y.  Weekly  Dig.  538;  s.  c.  in  full, 

17.  60  How.  P.  426;  N.  Y.  Daily  Reg. 

<N.  Y.  Daily  Reg.  Feb.  9,  ISSO;  March  12,  1881.     See  also  Scott  vs. 

s.  c.  more  fuUy,  9  Rep.  305;  1  Fed.  Ives,  N.  Y.  Daily  Reg.  July  24,  1879, 


Seats  Liable  to  Legal  Process.  157 

plication  for  an  order  requiring  the  bankrupt  to  make 
transfer  of  his  seat  in  the  New  York  Stock  Exchange  to 
the  assignee  in  bankruptcy,  or  to  such  person  as  the  as- 
signee might  procure  as  a  purchaser  of  the  seat,  Judge 
Choate,  in  the  United  States  District  Court,  in  a  lengthy 
decision,  said  :  "  The  real  question  is  whether  the  right  or 
privilege  which  the  bankrupt  holds  as  a  member  of  this 
Stock  Exchange  is  to  be  regarded  as  property  which  passes 
to  his  assignee  in  bankruptcy,  under  the  Bankrupt  Law, 
for  the  benefit  of  his  creditors.  If  it  is,  then  whatever  it 
may  be  necessary  for  the  bankrupt  to  do  to  make  the  right 
available  to  the  assignee,  he  will  be  requu'ed  to  do.  The 
seat,  however,  has  an  actual  pecuniary  value  which  the 
rules  of  the  society,  as  interpreted  and  applied  in  practice, 
permit  the  holder  to  realize  by  a  sale  and  transfer.  There 
is  no  practical  difficulty  in  efifecting  a  transfer  of  this  right 
or  interest,  for  a  })ecuniary  consideration,  subject  to  the  con- 
dition that  the  debts  of  the  present  holder  to  members  are 
first  paid,  and  the  right  or  privilege  is,  to  all  intents  and 
purposes,  a  business  right,  or  privilege  for  business  pur- 
poses only.  I  see  nothing  in  the  rules  of  the  Exchange 
which  renders  it  impossible  for  a  seat  to  be  disposed  of  by 
the  assignee  with  the  co-operation  of  the  bankrupt,  sub- 
ject to  the  condition  ;d)ove  mentioned.  This  seat  in  the 
board  was  actually  used  as  a  part  of  the  business  capital 
of  these  bankrupts  as  Stock-brokei-s.  To  suffer  the  bank- 
rupt still  to  hold  it  virtually  withdraws  several  thousand  dol- 
lars in  value  of  his  business  assets  from  his  creditors."  The 
court  review<'d  scvend  cases  somewliat  analogous,  one  of 

where  the  court  dei>ie«l  an  upplicii-  Exchange!  from  disposing  of,  or  in- 
tion  for  an  injunction  to  restrain  tcrfcrinj;  with,  the  proceeds  of  a 
the  president  of  the  .New  Yorit  Stock    inenihcr'H  Heat  in  the  E.xcliange. 


158  Stock-brokers  ami  Stock  Exchanges. 

which  was  touching  a  stall  in  a  market,  in  which  it  was 
determined  that  the  transfer  could  not  be  made  without 
the  consent  of  the  city  authorities,  and  concluded  as  fol- 
lows :  "The  controlling  consideration  is,  as  it  seems  to  me, 
that  practically,  and  whatever  its  foi-m  or  incidents  with 
respect  to  other  matters  may  be,  it  is  a  part  of  the  bank- 
rujifs  business  assets,  or,  more  generally,  of  his  property, 
Avhich  it  was  the  priraar}'  design  of  the  Bankrupt  Law  to 
distribute  among  his  creditors  ;  and  that  the  peculiarities 
which  distinguish  this  from  other  property  are,  in  view  of 
the  evident  purpose  and  scope  of  the  Bankrupt  Law,  unes- 
sential, mere  technical  cobwebs  which  the  law  is  strong 
enough  to  break  through."  An  order  was  directed  to  be 
entered  requiring  the  bankrupt  to  execute  any  transfer,  as- 
signment, or  other  instrument  necessary  for  the  purpose  of 
vesting  the  title  of  his  seat  in  the  New  York  Stock  Exchange 
in  such  person  as  the  assignee  in  bankruptcy  might  procure.^ 

'  Contra,    In    re    Sutherland,    G  109  N.  Y.  593,  but  the  court,  held 

Biss.  526,  but  the  doctrine  of  In  re  that  as  the  rules  of  the  Exchange 

Ketchum,  supra,  has  since  entirely  merely  provided  for  the  sale  of  the 

prevailed.     Matter  of   Werder,    15  seat  of  an  expelled  member,   and 

Fed.  789;  Piatt  vs.  Jones,  96  N.  Y.  were  silent  as  to  the  disposal  of  the 

24;    McCabe  vs.  Emmons,   109   N.  proceeds,  the  member  could  not  be 

Y.   665;    Powell    vs.    Waldron,   80  deprived  of  the  property  right  in  his 

N.   Y.   328;    People    ex   rel.   Lem-  seat,    and    that   after    paying   any 

mon  vs.  Feitner,  167  X.  Y.  1.     So,  debts  due  to  the  members  or  to  the 

too,  vmder  the  bankruptcy   act   of  Exchange,  the  balance  constituted 

1898.      In    re    Gaylord,    111    Fed.  part   of  the   bankrupt's   estate  to 

Rep.  717.     In  that  case  it  appeared  which  his  trustee  became  entitled, 

that  the  bankrupt  member  had  been  Id . 

expelled  for  fraud,  and  the  St.  The  title  to  the  seat  is  vested  in 
Louis  Stock  Exchange  sought  to  re-  the  assignee  by  the  assignment  in 
tain  the  proceeds  of  the  sale  of  the  bankruptcy  and  the  assignor  may 
seat  on  the  ground  that  the  expul-  be  compelled  by  order  of  the  court 
sion  of  the  member  had  worked  a  having  jurisdiction  of  the  bank- 
forfeiture  of  the  proceeds  to  the  Ex-  ruptcy  proceedings  to  execute  the 
change,  as  held  in  Belton  vs.  Hatch,  necessary    assignments,    transfers, 


Seats  Liable  to  Legal  Process.  159 

It  has  been  also  recently  decided  by  the  United  States  Su- 
preme Court  in  the  case  of  Page  vs.  Edmunds/  that  a  seat  in 
the  Philadelphia  Stock  Exchange  is  property  within  the 
meaning  of  the  Bankruptcy  act,  as  a  bankrupt  member  might 
have  transferred  it  prior  to  the  tiling  of  the  petition  (Act  of 
189S,  section  TO,  subdivision  5),  subject,  however,  to  the  pay- 
ment of  any  debts  due  to  the  Stock  Exchange  creditors,  and 
when  there  are  no  such  debts,  it  passes  to  the  bankruptcy 
trustee. 

etc.,  to  pass  the  seat  to  such  person  He  has  then   ceased  to  be  either 

as    the    assipjnee    mijiht    procure,  "debtor"  or  "bankrupt."     Matter 

Matter  of  Ketchum,  Piatt  vs.  Jones,  of  Nichols,   1   Fed.  842;  Piatt  vs. 

supra.  Jones,  supra.     Nor  will  a  court  of 

"In  an  unreported  case  Judge  equity  under  such  circumstances 
lilatchford  refused  to  make  an  order  interfere  by  injunction,  at  the  in- 
for  tlie  sale,  at  auction,  of  a  seat  in  stance  of  the  assifinee  or  a  purchaser 
tlie  Stock  E.xchanije,  solely  l)ecavise  from  him  who  has  not  been  admit- 
he  would  not  permit  a  public  sale  to  ted  to  the  E.xchange,  to  restrain  the 
be  made  under  the  sanction  of  the  former  bankrupt  from  using  the  un- 
court,  in  a  case  where  the  assignee  transferred  seat  or  the  Stock  Ex- 
could  not  undertake  with  the  pur-  change  from  allowing  liim  to  do  so. 
chaser  to  deliver  the  thing  sold."  The  membership  of  the  Exchange 
In  re  Gallagher,  16  Blatch.  117.  Ix-iiig  unlimited  and  the  assignee  or 
The  assignee  in  bankruptcy,  how-  vendee  not  being  admitted,  there  is 
ever,  is  not  bound  to  accept  prop-  no  injury  done  him  by  allf)wiiig  the 
erty  of  an  onerous  or  burdensome  former  liankrupt  to  contiinie  his  use 
nature,  and  may  elect  to  accept  or  of  the  seat.  When  the  vendee  of 
not  a  seat  encumbered  with  debts  the  assignee  had  applied  to  the  Ex- 
to  members  of  the  Exchange,  change  to  have  his  right  recognized, 
Twelve  years  of  "masterly  inac-  or  when  he  iiad  been  legally  iiomi- 
tivity"  while  the  bankrupt  was  by  nuted  ami  elected  to  the  Exchange, 
his  own  elTort.s  discharging  his  debts  then  undoubtedly  the  jnri.sdiction 
within  tlie  Exchange,  was  sufTicient  of  a  court  of  e<)uity  might  be 
ground  upon  which  to  decide  that  invoke<l  to  compel  the  former 
the  assignee  had  elected  not  to  take,  bankrupt,  in  case  of  his  rcfus.il,  to 
Sparhawk  vs.  Verkes,  112  V.  S.  1.  execute   any  paper  tlnit   might  be 

The   authority    of   the   court   of  necessary  to  vcwt  a  complete  title  in 

bankniptcy  ceancs  at  the  dlMclmrgo  the  applicant.    McC'abe  vs.  lunmons, 

and    the    former   bankrujit    cannot  and  Piatt  vs.  Jones,  supra, 

after    that   be    com|)elled    by    such  '  1S7   I'.  S.  r^'M).     Sec-  also  In  ro 

court  to  execute  such  iiuitrumentjj.  .N'cimann,  121  Eed.  738. 


160  Stock-brokers  and  Stock  Exchanges. 

From  the  evidence  it  appeared  that  the  seat  had  a  decided 
value,  as  the  bankrupt  had  paid  $5500  for  it,  and  he  testified 
that  tlie  last  price  he  had  heard  paid  for  a  seat  was  $8500. 
Upon  the  question  of  value  the  court  said:  "  The  contin- 
gencies wliich  may  defeat  or  affect  its  title,  or  its  enjoyment, 
will  be  reflected  in  its  price,  and  if,  notwithstanding  them,  a 
seat  has  a  vendible  value  of  from  $5000  to  $8000,  it  would 
seem  that  tlie  law  should  have  some  process  to  reach  it  for 
the  benefit  of  creditors.  And  the  bankrupt  act  supplies  the 
process."  The  court  also  declined  to  follow  the  cases  of 
Thompson  vs.  Adams  and  Pancoast  vs.  Gowen,  in  so  far  as 
it  might  be  gathered  from  them  that  a  seat  in  the  Stock 
Exchange  was  not  property  which  might  pass  to  a  trustee 
in  bankruptcy,  as  these  decisions  were  not  interpretations 
of  a  state  statute,  but  were  declarations  of  general  law — 
mere  definitions  of  property — as  to  which  the  court  might 
dispute  their  conclusions,  if  their  reasoning  did  not  ])ersuade. 
And  an  order  directing  the  trustee  to  sell  the  seat  at  public 
auction,  subject  to  the  by-laws  of  the  Exchange,  was  ap- 
proved. 

Whether  the  Exchange  should  be  joined  as  a  part}''  in 
such  proceedings  has  been  mooted.  In  the  case  of  Campbell 
vs.  The  New  York  Cotton  Exchange,'  in  the  New  York 
Supreme  Court,  Special  Terra,  the  plaintiff,  a  receiver,  set 
up  a  judgment  in  favor  of  one  Weeks  vs.  Talcott ;  the  owner- 
ship by  Talcott  of  the  certificate  of  a  seat  in  the  Cotton 
Exchange ;  that  the  by-laws  provide  that  on  the  surrender 
by  a  member  of  his  certificate  to  the  treasurer  of  the  Ex- 
change, "  a  transfer  should  be  made  by  him  to  a  member  or 
member-elect  only ; "  and  that  "  any  member  may  purchase 

»  N.  Y.  Daily  Reg.  Jan.  11,  1881;  s.  c.  47  N.  Y.  Super.  Ct.  55& 


Seats  Liable  to  Legal  Process.  161 

said  rights  of  membership  of  any  other  member,  which 
shall  give  him  the  right  to  sell  the  same  to  any  other  mem- 
ber or  member-elect;"  that  plaintiff,  as  receiver  in  Weeks 
vs.  Talcott,  prior  to  the  commencement  of  this  action, 
received  an  offer  from  one  M.,  a  member,  in  good  stand- 
ing, of  the  Exchange,  of  $1000  for  said  seat;  that  Talcott 
refused  to  excute  the  necessary  transfers,  and  the  suit  is 
brought  to  compel  such  transfers,  it  being  alleged  that  Tal- 
cott has  no  other  ])ro[)erty.  The  corporation  demurred  to 
the  complaint,  claiming  that  it  was  improperly  joined  as 
defendant,  thei-e  being  no  suggestion  that  the  Exchange 
would  refuse  to  abide  by  its  rules  and  by-laws,  and  that  the 
court  was  bound  to  assume  that  when  the  time  came  and 
the  necessary  conditions  precedent  were  performed,  the  Ex- 
change would  do  what  it  ought  to  do. 

But  the  demurrer  was  overruled  on  the  ground  that  the 
plaintiff's  equitable  cause  of  action  comprehended  a  con- 
summated assignment  of  the  seat ;  or,  in  other  words,  a  com- 
plete vesting  of  the  right  to  a  seat,  which  could  not  be  ac- 
complished without  the  defendant,  the  New  York  Cotton 
Exchange's  co-operation.  It  is  therefore  a  necessary  party 
to  the  action.  There  is  no  more  trouble  substantially  con- 
nected with  the  defence  of  the  action  than  would  bo  in- 
volved in  the  defendant's  scrutinizing  any  set  of  circum- 
stances which  Would  lie  jiresented  to  it  with  a  demand  of 
transfer  under  the  rules.' 

'  It  has  not,  however,  been  the  compel  the  <lel)tor  to  assifin  his  seat 
practice  to  join  the  Kxchuiific  U8  a  to  a  receiver  in  .siipplenicntnry  pro- 
party,  and  in  Londhoiin  vh.  White,  ceedinjis,  it  was  hcltl  that  as  all  the 
1  N.  Y.  City  Court,  S[M*cial  Term,  07  rights  and  interests  of  the  I';.\<han;;e 
How.  Pr.  107,  where  the  ohjection  in  the  niemhersiiip  are  fixetl  and  the 
of  nor»-joinder  of  the  Exchange  wiw  transferee;  takes  it  with  the  hunlen 
raised  in  oppoHition  to  a  motion  to  of  thettc  ^i^ht8,  which  co\ild  not  be 
11 


162  Stock-brokers  aud  Stock  Exchanges. 

The  following  propositions  may  be  deemed  as  settled  : 

1.  That  in  the  disposition  of  a  scat,  or  the  proceeds  thereof, 
the  members  of  the  Exchange  will  be  preferred  to  outside 
creditors. 

2.  That  the  seat  is  not  the  subject  of  seizure  and  sale  on 
attachment  and  execution. 

3.  That  the  proceeds  of  the  seat,  in  the  hands  of  the  Ex- 
change or  its  officers,  are  capable  of  being  reached,  after 
the  claims  of  members  have  been  satisfied,  to  the  same 
extent  and  in  the  same  manner  as  any  other  money  or 
property  of  a  debtor. 

4.  That  a  person  owning  a  seat  in  the  Exchange  can  be 
compelled,  by  proceedings  subsequent  to  execution,  or  under 
the  direction  of  a  receiver,  to  sell  his  seat  to  a  person  accepta- 
ble to  the  Exchange,  and  devote  the  proceeds  to  the  satis- 
faction of  his  judgment  debts.  IIow  far  the  Exchange  ma}'' 
go  in  deciding  that  such  a  person  is  not  acceptable  to  it  has 
not  been  decided.  The  Court  of  Appeals  said,^  there  is  "  no 
case  where  the  Stock  Exchange  has  admitted  to  membership 
the  purchaser  at  a  judicial  sale.  The  court  has  no  power  to 
compel  such  action  and  the  probability  of  a  creditor  reach- 
ing a  favorable  result  by  selling  the  seat  of  a  member  is,  to 
say  the  least,  exceedingly  remote."     But  it  seems  that  the 

divested  by  any  order  of  the  court,  ner,  167  N.  Y.  1.     See  also  Ameri- 

the  Exchange  was  not  a  necessary  can  Live  Stock  Co.  vs.  Chicago  Live 

party.     It  certainly  does  not  seem  Stock  Exchange,   143  111.  210,  at  pp. 

proper  to  submit  the  Exchange  to  228,  229.     The  Xew  York  Court  of 

the  annoyance  of  being  joined  as  a  Appeals  has  decided  that  a  patent 

party    in    every    such    proceeding  may    be   reached   by   a    creditor's 

where  its  own  interests  cannot  be  bill,    and   the    debtor    cannot    set 

infringed   and    where   there    is    no  up  that  it  is   invalid  for  want   of 

claim  that  it  will  infringe  the  in-  utility,  and  therefore  not  property, 

terests  of  others.  Gillett  vs.  Bate,  S6  X.  Y.  87. 
'  People  ex  rel.  Lemmon  vs.  Feit- 


Liability  of  "Seats"  to  Taxation.  103 

Exchange  could  not  wantonly  refuse  a  member  leave  to  sell 
to  a  proper  person,  and  st'?)ihle  also  to  one  proposed  by  a 
sequestrator.^ 

X.  Liability  of  "Seats"  to  Taxation. 

The  value  of  a  seat  in  the  Stock  Exchange  is,  with  some 
judicial  dissent,  recognized  to  be  capital  invested  in  business^ 
and  as  such  liable  to  the  operation  of  any  tax  law  which 
reaches  personal  property  either  in  the  usual  acceptation  of 
that  terra,  or  as  it  may  be  defined  by  statute,  such  for  in- 
stance as  the  Transfer  or  Inheritance  Tax.^ 

*  London  and  Canadian  Loan  Co.  property  to  pay  that  debt  can  be 

vs.  Morphy,   10  Ont.   Sfi,  at  p.  00.  pursued.     An  injunction  will  not  be 

The  question  as  to  how  a  seat  in  the  granted    restraining    the    transfer 

Stock  Exchange  should  be  regarded  pendente  lite  of  such  seat.     First 

in  the  settlement  of  the  affairs  of  a  Nat.  Bk.  as.  Miller,  Daibj  Reg.  Oct. 

partnership,    ha.s  never  apparently  2.5,  1882;  4  Mo.  L.  Bull.  (N.  Y.)  92. 

directly     arisen.      It     seems    that  '  People  ex  rel.  Lemmon  vs.  Feit- 

there  can  be  no  objection  to  part-  ner,  167  N.  Y.  1;  Matter  of  Glen- 

ners,  only  one  of  whom  is  a  member  dinning,   68   .^pp.   Div.    125,    aff'd 

of  the  Exchange,  making  any  bar-  without   opinion,   64    N.    E.    1121; 

gain    they    plea.se    Ijetween    them-  Austen  vs.  Brigham,  67  N.  Y.  Supp. 

selves  about  the  seat  of  the  Ex-  891.     See  also  Matter  of  Curtis,  31 

change  partner  and  about  the  price  Mbc.  83. 

or  value  of  it,  subject  of  course  to  Money  is  capital  and  when  money 

the  superior  rights  of  the  Exchange.  Is  invested  in  facilities  or  appliances 

London  and  Canadian  Loan  Co.  vs.  to  do  business  with,  it  is  capital  in- 

Morphy,  10  Ont.  86,  at  p.  101.  vested  in  that  business;    instances 

An  action  cannot  be  maintained  being  money  expended  for  the  li- 

which  Is  fnie  at  law  to  reco\cr  judg-  brary  of  a  lawyer,  tlic   implcnienta 

mcnt  for  del)t  again.st  three  of  four  of   a   siirgeon,  the  patent  rigiits  of 

defendant-s,  and  a  creditor's  bill  as  a   manufacturer.     The    money   ex- 

to  the  other  defendant,  to  reich  an  |)ended  in  buying  a  seat  in  the  Stock 

Exchange   membership  in  the  lut-  Exchange  is   paid   for  property  of 

ter's  name,  but  allogwl  to  have  been  great  value  and  which  is  the  main 

purchaHe<l  with  tn(jncy  Ix-longing  to  instmmentality  for  carrying  on  the 

a  copartiienship  of  the  thrw  other  member's   lju.sino.s8.      IVr  Vann,  J., 

defendantH  and  in  o<jiiity  to  Ijclong  in  I'eople  vs.  Feitnor,   l(i7  N.  Y.  I. 

to   them,  UM   a   judgment    for   debt  'Matter  of   Ileilnian's    F*st.,    171 

muiit  alwayn  be  secured  before  the  N.  Y.  251,  rev'g  77  \.  i).  355;  Mat- 


164  Stock-brokers  and  Stock  Exchanges. 

It  has  been  held  in  New  York  that  the  definition  of 
the  personal  property  upon  which  the  latter  taji  is  imposed 
is  that  contained  in  section  242  of  the  Tax  Law  (Laws,  1S96, 
ch.  908),  and  not  in  that  of  subdivision  5  of  section  2  of  the 
same  statute.' 

A  membership  in  the  Stock  Exchange  is  not,  however, 
considered  to  be  personal  ])roperty  under  the  special  and 
limited  definition  of  that  species  of  property,  given  by  the 
last  cited  section  (subdivision  5  of  section  2),'^  and,  therefore, 
the  value  of  a  seat  in  that  State,  whether  owned  by  a  resident 
or  non-resident  of  the  State,  is  not  liable  to  the  general  tax 
applicable  to  county,  town,  and  municipal  purposes,  imposed 
upon  property  by  the  Tax  Law  (Arts.  1-9).^ 

In  California  it  has  been  held  that  as  a  seat  in  the  Stock 
Exchange  is  a  mere  personal  privilege  to  belong  to  an 
association  with  the  latter's  assent,  it  is  not  liable  to  city, 
county,  or  state  taxes.* 

XI.  Gratuity  Fund — Life  Insurance. 

The  constitutions  of  both  the  New  York  and  the  Phila- 
delphia Stock  Exchanges  make  provision  for  the  families  or 
representatives  of  deceased  members.  The  New  York 
Produce  Exchange  has,  by  its  by-laws,  made  similar  pro- 
vision in  accordance  with  express  authority  in  its  charter,' 

ter  of  Glendinning,  64  N.  E.  1121,  Brigham,  67  N.  Y.  Supp.  891,  so 

afT'g  68  A  pp.  Div.   125;  Matter  of  far  as  it  decides  to  the  contrary. 

Curtis,  31  Misc.  84;  64  X.  Y.  Supp.        ^  San  Francisco  vs.  Anderson,  36 

574.  Pac.  1034;  San  Francisco  vs.  Wang- 

»  Matter  of  Hellman,  174  X.  Y.  254.  enheim,  37  Pac.  221 .     See  also  City 

'  L.    1896,   ch.   90S,  §  2,  subd.  4,  of  Baltimore  vs.  Johnson,  54  Atl. 

made  subd.  5  by  L.  1901,  ch.  490.  646. 

'  People  ex  rel.  Lemmon  vs.  Feit-       '  Laws,    1882,   ch.  36;   Kemp  vs. 

ner,   167  X.  Y.   1,   which  must  be  X'.  Y.   Produce  Exchange,  34  App. 

considered  as  overruling  .Austen  vs.  Div.  175. 


Gratuity  Fiiud. 


166 


and  it  has  been  held  that  it  could  not  divert  the  fund  which 
it  had  accumulated  to  meet  death  losses,  anil  destroy  the 
vested  rights  of  members  therein,  bv  so  amending  its  by- 
laws as  to  provide  for  its  distribution  among  the  living 
subscribing  members.  The  power  of  such  a  corporation  to 
amend  its  by-laws  is  a  power  to  regulate,  within  reasonable 
bounds,  not  a  power  to  destroy  the  contract  rights  of  its 
members.^ 


'  Parish  vs.  New  York  Produce 
Rxchange,  169  N.  Y.  34.  The 
p-atuity  fund  of  this  Exchange 
exists  by  \'irtue  of  a  provision  in  the 
charter  of  the  Exchange,  and  an 
additional  reason  given  by  the 
court  for  its  decision  was  that  the 
statute  of  uicorporation  did  not 
confer  upon  the  members  of  the 
Exchange  the  power  to  create  a 
fund  by  assessment  for  di.stributing 
among  the  subscribing  membei-s 
thereof.  Had  a  by-law  with  that 
purpose  been  enacted  in  the  first 
in.stancc  it  would  have  been  without 
authority  in  the  charter,  which  did 
not  attempt  to  confer  the  power  to 
create  a  gratuity  fund  for  distribu- 
tion among  the  members  of  the 
E.xchange,  l)ut  instead  limited  its 
scope  to  that  (jf  provisions  for  the 
widows  and  families  of  decease<l 
members  or  other  persons  depend- 
ent ufx>n  a  dc*cea.sed  mcnil)er. 

It  hart,  however,  been  since  held 
by  the  Supreme  Court,  Spt;cial  Term 
(French  vs.  Commercial  ICxchange, 
N'.  Y.  L.  J.  July  Zr^,  HK)2)  that  an 
amendment  to  the  by-laws  of  the 
New  York  Merrantiie  Kxchaii^re 
(which  is  an  incorporated  !LHso<in- 
tion),  pfntiitting  the  withdrawal  of 
a  member  holding  a  certificate  in 


the  participating  class,  upon  gi^^ng 
notice  and  relinquishing  his  claim 
upon  the  gratuity  fund,  was  not 
unreasonable,  as  it  did  not  under- 
take to  dispose  of  the  funds  on 
hand,  or  any  assessments  which  had 
accrued,  and  that,  therefore,  it  did 
not  interfere  with  the  vested  rights 
of  plaintiff  (a  participating  member) 
under  the  agreement  by  which 
the  participating  membership  was 
formed.  It  is  doubtful,  however, 
if  the  doctrine  of  this  decision  can 
be  upheld  in  view  of  the  decision  of 
the  Court  of  .\ppeals,  ju.st  cited 
(Parish  vs.  N.  Y.  Produce  Ex- 
change, 169  N.  Y.  34).  If  aU  the 
participating  members  of  the  Mer- 
cantile Exchange  should,  imme- 
diately after  the  passage  of  the  by- 
law, elect  to  avail  of  its  provisions, 
antl  withdraw  from  the  participa- 
tion, tlic  ()l)jo(t  for  which  the  fund 
was  established  could  not  be  ful- 
filletl,  viz:  the  making  provision 
for  the  widows  and  children,  etc.,  of 
such  members,  except  to  the  extent 
of  the  fund  then  existing,  and  even 
as  to  that  fimd,  it  could  scan-ely  lie 
made  available  for  the  bencliriaries 
under  the  by-laws,  in  view  of  such 
general  withdrawal. 


ItJG  Stock-brokers  and  Stock  Kxchanpres. 

The  question  has  arisen,  in  Pennsylvania,  in  regard  to  the 
right  of  the  representatives  of  a  deceased  suspended  member 
to  recover  the  fund. 

In  this  case '  the  facts  were  these :  One  MacDowell,  the 
father  of  the  phiintiff ,  purchased  a  seat  in  the  Exchange,  and 
was  elected  a  member  August  28, 1865.  In  December,  1875, 
while  ^lacDowell  was  still  a  member, an  amendment  to  the 
constitution  of  the  Exchange  was  passed,  providing  substan- 
tiallv  as  follows  :  That  every  fall  onemher  of  the  Exchange 
should,  in  addition  to  all  other  payments  required  of  Ji'nyi  at 
the  time  of  his  admission,  pay  into  the  hands  of  the  trustees 
$15,  and  the  ftrther  sum  of  $\5  a7imially,  on  Decemher  1, 
and  also  the  sum  of  %\^  upon  the  death  of  any  full  member. 
Said  payments  were  to  he  charged  and  collected  in  the  same 
manner  as  all  other  dues  to  the  Exchange.  Said  trustees  were 
to  set  apart  the  fund  arising  from,  such  payments  as  the  "  Gra- 
tuity Eu7id,'"  and  loere  to  pay  therefrom,  withiji  thirty  days 
after  the  death  (f  any  fxdl  member,  the  sum  o/'S2000  to  his 
nominee,  widow,  children,  or  legal  representatives.  A  full 
member  was  one  owning  a  seat  in  the  Exchange,  whether 
suspended  or  not. 

After  the  passage,  MacDowell  ]xiid  all  assessments  except 
those  stated  hereafter. 

On  November  17, 1877,  the  following  amendment  to  the 
constitution  was  adopted : 

"  That  any  suspended  member  who  shall  have  failed  for 
three  months  to  j>ay  in  full  all  gratuity  dues  and  assessments, 
shallforthwith  cease  to  be  a  full  member  for  the  purposes  of 
this  section  j  such  memher  maybe  restored  to  such  full  mem- 
bership by  a  favorable  report  of  the  Standing  Committee, 

*  MacDowell  vs.  Ackley,  8  Week.  Notes  Cas.  464. 


Gratuity  Fund.  1(17 

upon  paying  infuU  all  arrears  of  gratuity  dues  and  assess- 
ments.^^ 

It  was  not  shown  that  MacDowell  ever  expressly  assented 
or  agreed  to  this  amendment.  lie  failed  to  pay  his  regular 
quarterly  dues  for  1877  and  for  some  parts  of  the  year  1878, 
and  several  assessments  due  from  him  to  the  Gratuity  Fund, 
by  reason  of  the  deaths  of  members,  in  1877  and  1S7S,  and 
continued  indebted  in  these  amounts  to  the  Exchange  until 
his  death.  In  April  MacDowell  became  hopelessly  insane, 
and  he  was  subsequently,  in  August,  duly  suspended  in  ac- 
cordance with  the  rules  fornon-payment  of  dues,  after  which 
no  further  dues  or  assessments  were  imposed  upon  him.  In 
November,  1878,  he  died,  leaving  one  child,  the  plaintiff, 
his  sole  heir,  and  having  designated  no  person  to  whom  the 
gratuity  from  the  Exchange  should  be  paid. 

After  his  death  his  seat  was  sold  under  the  rules,  but  suffi- 
cient was  not  realized  to  pay  the  claims  of  the  members  of 
the  Exchange.  A  portion  of  the  proceeds  of  the  sale  of  the 
seat  were  applied  to  the  payment  of  said  dues  and  assess- 
ments ;  said  proceeds  were  not  distributed,  however,  but 
were  held  by  the  treasurer  of  the  Exchange.  This  action 
was  brought  by  the  guardian  of  tlie  heir  of  ^lacDowell 
against  the  ofScers,  etc.,  of  the  Exchange  to  recover  the  sum 
of  $2,000  above  provided  for.  Judgment  was  rendered  for 
the  defendant,  which  was  affirmed  by  the  Supreme  Court, 
where  it  was  held  that  the  right  of  ^facDowell  in  this 
Gratuity  Fund  was  grafted  on  his  existing  mombersliij)  in 
the  Stock  Exeiian^^e,  and  that  ho  Wiis  ij(jund  by  the  amend- 
merit  which  had  been  regularly  adopted.  The  court  further 
h(ild  that  hisal)sence  when  the  aniendnieut  was  a<l<)j)ted, 
even  if  shown,  could  not  avail  ;  that  even  if  lie  had  dis- 
8entc<l  therefrom  ho  couhl   not  have  heen   relieved  from  its 


168  Stock-brokers  and  Stock  Exchiiiii^es. 

obligation  ;  for,  lia\  iiig  subscribed  to  the  constitution  and 
bv-la\vs,  and  the  change  havin<;  been  made  in  accorchmce 
therewitli,  he  could  not  be  i)erniitted  to  (juestion  its  validity  ; 
he  could  not  enjoy  the  benefits  of  the  fund  without  perform- 
ing his  jxirt  towards  creating  it;  and  that  his  subsequent 
mental  incapacity  did  not  relieve  hiiu  from  the  effect  of 
previous  neglect  and  refusal  to  discharge  his  legal  and  just 
duty. 

Article  XYIII.  of  the  constitution  of  the  New  York 
Stock  Exchange,  establishing  the  gratuity  fund,  will  be 
found  in  the  appendix,  and  the  by-luw  of  the  Produce 
Exchange  is  substantially  the  same.* 

The  agreement  of  the  Stock  Exchange,  expressed  in  its 
constitution,  does  not  bin<l  that  body  to  pay  upon  the  death 
of  a  member  the  full  sum  named,  but  only  to  pa}''  that 
suni  or  such  part  thereof  as  shall  be  yielded  by  levy  and 
assessment  upon  surviving  members.^  While  it  is  called  a 
gratuity  it  is  beyond  the  power  of  the  Exchange  itself  to 
withhold  it,  after  collection,  against  those  beneficially  inter- 
ested.^ 

The  right  to  the  gratuity  fund  falls  with  the  loss  of 
membership  or  the  non-payment  of  subscriptions  in  accord- 
ance with  the  constitution  and  by-laws."* 

The  provision  in  the  plan  against  assignability  for  debts 
has  been  sustained  by  the  courts.  The  gratuity  is  "  in- 
capable of  assignment.  It  was  the  intention  to  create  pro- 
vision for  the  family  of  the  deceased  member  which  should 

'Kemp  vs.  New  York  Produce  ^  Webb  vs.  Meyers,  67  Hun,  11. 

Exchange,  31  App.  Div.  175;  Mc-  See  also  Matter  of  Xoyes,  5  Dem. 

Cord    vs.    McCord,    40  App.   Div.  307. 

275.  ^MacDowell  vs.  Ackley,  93  Pa. 

'  Matter  of  Xoyes,  5  Dem.  309,  at  St.  277;   Matter  of  Fay,  25   Misc. 

p.  317.  469. 


Gratuity  Fund.  169 

be  beyond  the  hazard  of  loss  from  pecuniary  misfortune.''  * 
It  is  not  liable  to  the  payment  of  debts  or  legacies-  and 
even  an  assignment  made  during  the  life  of  a  member,  by 
his  wife,  who  was  the  sole  beneticiary  of  the  fund,  in  which 
assignment  the  husband  joined,  would  not  vest  in  the  as- 
signee any  interest  in  the  fund.^ 

In  the  last  cited  case  tbe  court  based  its  conclusion  "  upon 
the  broad  ground  that  it  would  not  only  be  against  public 
}X)licy  to  uphold  the  assignment,  but  it  would  be  subversive  of 
the  entire  plan  of  beneficence  as  embodied  in  the  constitution 
and  by-laws  of  the  Exchange."  * 

Nor  does  the  fact  that,  with  the  consent  of  a  creditor  to 
whoui  a  seat  in  the  Boston  Stock  Exchange  was  assigned 
to  secure  a  loan,  part  of  a  gratuity  fund  paid  to  the  assign- 
or's widow,  was  applied  in  part  payment  of  the  loan, 
preclude  the  creditor  from  enforcing  his  lien  against  the 
proceeds  of  the  sale  of  the  seat,  as  the  gratuity  was  not 
a  right,  but  merely  a  gift  from  the  other  members  to  the 
widow.^ 

Nor  has  the  member  any  such  property  right  in  the 
gratuity  fund  as  would  enable  him  to  change  the  benefi- 
ciary while  living  or  alter  the  disposition  of  the  fund  by 
his  will.®     And  it    is  not  taxable   under  the  Transfer  or 

'  Kemp   vs.   New  York   Produce  *  Xiishua    Bank    vs.    .\bbolt,    63 

Exchai.fie,  34  App.  Div.  175.  N.  E.  (.Mxs.s.)  105S. 

'Matter  of  Fay,  25  MLsc.  408.  '  Webb  vs.  Meyers,  04  Hun,   11. 

*  McCord  vs.  McCord,  46  App.  Yet,  where  in  making  a  particular 
Div.  275.  lefjacy  to  hLs  next  of  kin,  the  testa- 

*  Id.  The  arpumont  uprjii  tlie  tor  nianif«?sts  liis  intention  that  the 
ground  of  puljlic  policy  is  ba.si.-d  upon  amount  of  the  gratuity  fiuid  sliall 
the  Himilarity  f)f  the  jrratuily  fund  to  form  pari,  thereof,  as  l)y  directing; 
ordinary  life  insuranctf  policies  for  his  executors  to  collect  it  and  apply 
the  l)enefit  of  thfwe  dep<-ndcnt  upon  it  on  the  le;;acy,  the  lc;:ateo  is 
the  insured,  whicli  in  .New  York  are  deenu'd  to  take  the  (gratuity  iw  pro 
generally  non-a«HiKnabl<'      Id  tanto  in  satisfaction  of  the  IcRacy, 


170  Stock-brokers  and  Stock  Exchauses. 

Inheritance  Tax,  as  assets  of  the  deceased,  as  it  passes 
not  by  virtue  of  his  will,  or  the  administration  of  his  es- 
tate, but  by  the  contract  of  the  deceased  with  the  Ex- 
change.* 

The  fund  is  to  be  paid  to  the  widow,  descendants,  children, 
adopted  children,  or  next  of  kin,^  but  under  by-laws  wherein 
children  and  not  adopted  children  were  mentioned,  an 
adopted  child,  in  view  of  the  statutes  giving  to  such  all  the 
ri"-hts  of  a  child  includino:  that  of  inheritance,  was  held  en- 
titled  to  share  in  the  fund  and  this,  it  was  said,  would  be  so 
even  if  the  deceased  adopted  the  child,  for  the  very  purpose 
of  enabling  the  adopted  child  to  obtain  the  fund.^ 

The  meaning  of  the  term  "next  of  kin"  as  used  in  the 
gratuity  fund  article  is  to  be  determined  according  to  the 
law  of  the  State  at  the  time  the  fund  becomes  payable.* 

It  is  provided  that,  "  In  all  cases  a  certified  copy  of  the 
proceedings  before  a  Surrogate  or  Judge  of  Probate  shall  be 
accepted  as  proof  of  the  rights  of  the  claimants,  be  deemed 
ample  authority  to  the  Exchange  to  pay  over  the  money, 
shall  protect  the  Exchange  in  so  doing,  and  shall  release 

under  the  familiar  doctrine  in  the  ^  Article  XVIII.  §  5,  as  amended 

law  of  wills,  that  a  beneficiary  who  to  April,    1903.     Should   there  be 

accepts  the  bounty  of  a  testator  none  of  these,  it  shall  be  credited  to 

must  do  so  upon  such  terms  as  the  the  members  against  whom  the  as- 

testator   has    imposed.     Matter   of  sessmcnt  shall  have  been  levied. 

Noyes,    5    Dem.    309.     And    if   an  ^  Kemp  vs.  New  York   Produce 

executor  collects  the  pjatuity,  and  Exchange,  34  App.  Div.  175. 

treats  it  as  part  of  the  estate,  and  Semble    that  the   adopted   child 

his  account  is  adopted  as  rendered,  might,  under  the  .statutes  of  New 

the  surrogate  has  no  jurisdiction  to  York,   claim  the  fund,  as  next  of 

reopen  the  decree  for  the  purpose  of  kin,  if  not  considered  as  the  child 

having  the  amount  thereof  deducted  of  the  deceased  wthin  the  by-law. 

from  the  estate.     Watt's  Estate,  20  Ibid. 

N.  Y.  Supp.  03.  ■•  Kemp  vs.   New  York   Produce 

'  Matter  of  Fay,  25  Misc.  468.  Exchange,  34  App.  Div.  175. 


Gratuity  Fund.  171 

the  Exchange  forever  from  all  further  claim  or  liability 
whatsoever.-' ^  And  payment  so  made,  though  to  persons 
not  justly  entitled  thereto,  discharges  the  Exchange  from 
any  hability  to  again  pay  it  over,  even  to  the  rightful  owners 
thereof.  This  protection,  however,  to  the  Exchange  does 
not  affect  the  right  or  title  of  those  legally  entitled  to  the 
fund  to  recover  the  amount  from  the  jierson  to  whom  it 
was  paid,  as  money  had  and  received  to  their  use.- 

All  interested  beneficially  in  the  fund  should  join  in  any 
action  for  its  recovery  from  the  Exchange.  It  cannot  be 
sued  therefor  piecemeal.^ 

In  concluding  this  review  of  the  general  legal  character  of 
unincorporated  Stock  Exchanges,  we  find  that  the  subjects 
discussed  are  comparatively  new  in  the  law,  and  lience  we 
have,  at  great  labor  and  expenditure  of  time,  set  fortli  the 
most  important  adjudications  in  full ;  from  which  it  appears 
that  the  courts  have  treated  these  novel  questions  in  a  spirit 
of  great  fairness,  and  that,  when  analogous  branches  of 
the  law  have  failed  to  furnish  precedents,  they  have  been 
determined  upon  general  principles  of  justice  and  good 
sense. 

'  Art.  XVIII.  §  5.  Exchance    CSpecial  Term,  X.    Y.), 

*  Webb  V.S.  Meyers,  G4  Hun,  11.        N.  Y.  Law  Journal,  July  11,  1901. 
'  Diepenbrock  va.  N.  Y.  Produce 


IT'J  Stock-brokers  and  Stock   Kxchaii^es. 


Chapter  III. 

ANALYSIS  OF  TRANSACTIONS  BETWEEN  BROKER  AND 
CLIENT  UPON  PURCHASE  OR  SALE  OF  STOCKS  IN  THE 
UNITED  STATES. 

1.  Stock-Brokers  and  Stock  Exchanges — License. 

II.  Legal  Relation  of  Stock-Broker  to  his  Client. 

III.  Definitions  of  Terms  Used. 

IV.  Piu'chase  on  '■^ Long  Account'''' — History  of  Trans- 

action, 
{ci.)    The  Order  to  Purdiasc — Price — Number  uf  Shares  to 

he  Bought. 
(Jb.)    Dutg  and  LlahUlty  of  Broker  in.  Parrhoshig  ;  Right 

to  Indevinitij. 
(c.)   Disposition  of  Stock  xohen  Purchased  ;  Safely  Keep- 
ing same  ;  Liability  to  Keep  Identical  Stock  Pur- 
chased^ etc. 
(d.)   Dividends,  Profits,  Assessments,  Calls,  Interest. 
(e.)  Rigid  of  Client  to  Control  and  Take  Up  Stock. 
Y.  Duty  of  Broker  to  sell — ^^  Stop  Order'' 
VI.  Special  Contract  loith   Client — Joint  Adventures  in 
Stocks. 
VII.  Sales  for  "  Short  Account.^'' 
(«.)    Nature  of  Short  Sale, 
(b.)   Duty  of  Broker  to  Sell  at  Price   Ordered. 
(f.)  Nature  of  Contract  Made  upon  ''  Borrou-ing  "  Stock  ; 

and  From   Whom  the  Stock  may  be   Borrowed, 
(d.)  Duty   of  Broker    to     Close    "  Short "    Contract   by 
"  Buying  in  "  Stock. 


License.  173 

VIII.   Compulsory  Sale  hy  Broler. 

(a.)  For  Failure  to  Put  Up  Mnvgins. 

(b.)  Form  of  Notice  ;   Upon  Wliom  Served  ;   Reasonable 

Time. 
(c.)  Notice  of  Sale  for  Failure   to  Comply  with  Demand 

for  Mary  ins. 
(d.)  Place  of  Sale. 
(?.)   Broker  Cannot  Sell  or  Purchase. 
(/.)   Effect  of  Sale  or  Purchase  by  Broker. 
IX.    When  Broker  can  Close  the  Transaction. 

X.  When  Broker  can  Act  by  Substitute. 
XI.  Broker'' 8  Commissions. 
XII.   Comjnu7iications   betweeii    Broker   and    Client  not 

Privileged. 
XIII.  Puts,  Calls,  Straddles  and  Pools,  considered  apart 

from  their  wagering  aspect. 
XI Y.   The  Clearing  Ilonse. 

1.  Stock-Brokers  and  Stock  Exch.anj^es — License. 

Ik  the  United  States  tlie  business  of  buviiif}:  and  selling: 
stocks  and  other  securities  is  generally  transacted  by  Bro- 
kers for  a  commission  agreed  upon  or  regulated  by  the 
usages  of  tiie  })lace  ;  and  although  any  person  may  enter 
into  such  an  occupation*  upon  his  obtaining  a  license  for 

'  A  national  hank, however, is  not  But  it  is  within  the  incidental 
by  its  charter,  or  incidental!}',  au-  powers  of  a  national  hank,  as  part 
thori7e<J  to  act  as  l>roker  in  the  of  the  business  of  l)ankin>j,  to  sell 
purchase  or  sale  of  bonds  and  securities  for  a  customer,  where  such 
Blocks.  First  National  Hank  vs.  sale  is  simply  for  the  purpo.se  of 
Charlotte,  02  U.  S.  CI  Otto)  122;  increjisin^^  the  customer's  d(>p<isit 
bank  of  AUentown  vs.  Hoch,  89  account  with  the  hank.  William- 
Pa.  St.  324;  Wickler  vs.  First  Na-  son  vs.  Mason,  12  Hun,  \M . 
tional  Bank,  42  Md.  581,  and  cases 
cited. 


174  Stock-brokers  and  Stock  Exchiiuges. 

that  purpose,  when  he  intends  to  carry  on  the  business  of 
a  Stock-broker  in  a  State  whose  legislation  makes  a  license 
a  prerequisite,  such  business  is  now  generally  restricted  to 
Brokers  wlio  are  members  of  Stock  Exchanges. 

In  Pennsylvania  the  occupation  of  Stock-broker  is  reg- 
ulated by  statute,  the  substance  of  which  is  here  given: 

I.  Stock-brokers  to  be  licensed,  etc. 

5.  License  to  be  renewed  annually,  etc^  to  enure  for  the 
benefit  of  assignees  or  legal  representatives.  Proceedings  in 
such  cases  :  Brokers  not  to  use  more  than  one  place  of 
business.  The  same  person  may  be  licensed  as  stock,  ex- 
change, and  bill  Broker. 

6.  Penalty  for  acting  without  license. 

9.  Tax  on  Broker's  license.  Three  per  cent  on  com- 
missions, etc.  (Stock,  bill  and  exchange  Brokers  were  re- 
lieved from  license  tax  by  the  Act  of  June  7,  1901,  P.  L. 
254.) 

10.  To  be  appraised. 

II.  How  classified. 

12.  To  make  annual  returns  on  oath. 

13.  Statement  of  name  of  Broker  or  firm,  location  of 
business,  and  amount  of  capital  engaged  to  be  reported  to 
the  auditor-general. 

14.  Penalty  for  neglect. 

15.  Power  of  auditor-general  in  relation  to  penalties. 

16.  Tax  on  receipts  to  be  additional  to  license.  (This  tax 
was  reduced  from  three  to  one  per  cent  by  the  Act  of 
June  13,  1901,  P.  L.  266.y 


'  See  1  Pepper  <t  Lewis's  Digest  of  1899,  p.  184,  and  Opinion  of  Attor- 

the  Laws  of  Penna.  tit.  "Brokers,"  ney  General  of  Penna.,  9  Dist.  Ct. 

where  the  cases  arising  under  the  Rep.  166. 
statute  are  given.     See  also  P.  L. 


License.  175 

Under  authority  of  the  legislature,  Chicago  has  enacted 
an  ordinance  making  it  unlawful  to  follow  the  business  of 
a  Broker  generally,  without  a  license  therefor.  The  text  of 
the  statute  and  the  ordinance  may  be  found  in  the  cases 
hereinafter  cited. 

The  constitutionality  of  this  license  tax  was  attacked  in 
Ulinois,  but  unsuccessfully,  the  supreme  court  holding  that 
a  tax  upon  occupations  or  employments  whether  for  rev- 
enue or  as  an  exaction  for  the  privilege  of  pursuing  a  call- 
ing may  be  imposed  in  the  form  of  a  license  tax  and  that 
the  legislature  is  not  restricted  therein  to  occupations  or 
businesses  which  are  immoral,  vexatious  or  injurious  to  the 
well-being  of  society,  nor  is  it  necessary  that  before  a  busi- 
ness can  be  regulated  or  burdens  imposed  upon  its  exer- 
cise, that  there  should  be  power  to  suppress  it.  "  It  is  true 
that  in  order  to  be  effectual,  a  license  must  confer  author- 
ity to  do  that  which  without  the  license  would  be  illegal 
but  .  .  .  the  occupation  may  be  lawful  in  itself  and  not  sub- 
ject to  prohibition  or  regulation  by  the  State,  yet  it  may  be 
prohibited  in  order  to  compel  the  taking  out  of  a  license  if 
the  purpose  is  to  raise  revenue  by  means  of  license  fees. 
Co(jley  on  Taxation,  pp.  595, 507."  The  constitutional  re- 
quirement of  uniformity  in  taxes  is  met  by  a  uniform 
operation  upon  all  within  the  class  to  be  taxed,  and  the 
taxing  or  licensing  power  may  be  delegated  by  the  State  to 
its  municipalities.' 

Tile  ordinance  defines  a  i'roker  as  "  one  who  for  coniinis- 
sion  or  othcr'-()nipcnsiition  i-icML'.igrd  in  st-llinn'oi-  in-Liot  iat  in"-- 
the  sale  of  goods,  wares  ;ind  iiii'rciiandi.M',  pfuduct*  or  >n-,i\n 
belonging  to  others"   and    tlir    phrase  "  goods,  wares  and 

'  Bantu  VH.  Cliiciiuo,  17-'  111.  JOJ;  h.  c.  JO  L.  II.  .\.  (ill;  Hniuii  va 
ChicaKo,  no  111.  ISO. 


176  Stock-brokers  jiiui  Stock  Exchanges. 

merchantlise "  includes  shuies  in  the  stock  of  incorporated 
companies  and  other  securities  which  are  the  subject  of 
common  barter  and  sale,  and  which  are  given  visible  and 
palpable  form  by  means  of  certificates,  bonds,  or  other  evi- 
dences of  indebtedness.' 

Brokers  in  mining  stocks  are  also  included  in  the  "words 
quoted,  and  a  Broker  who  has  dealt  in  stocks  for  a  third 
party  in  violation  of  the  ordinance  cannot  maintain  an  ac- 
t  ion  for  his  commission.^  But  in  Indiana,  where  there  is  also 
a  licensing  statute  (§  5269,  Horner's  Stats.  1902  ed.),  an  un- 
licensed person  not  engaged  in  "  the  regular  brokerage  busi- 
ness," to  which  regular  business  the  statute  only  applies,  w^as 
not  debarred  from  maintaining  an  action  for  compensation 
for  effecting  the  sale  of  stock.^  And  the  statute  does  not 
.apply  to  persons  dealing  in  stocks,  etc.,  on  their  own  account.'* 

In  Colorado  cities  are  empowered  to  license  Brokers. 
Mill's  Ann.  Stats.  §  4403,  cl.  61. 

In  Kansas  cities  may  collect  a  license  tax  from  keepers 
of  "  bucket"  shops  and  option  dealers.  Gen.  Stats.  (Dass- 
ler)  §  727. 

In  Maryland  Stock-brokers  were  required  to  be  licensed. 
Public  Gen.  Stat,  art  56,  §  12,  but  this  section  was  repealed 
by  L.  1896,  ch.  144. 

In  Missouri  money  Brokers  and  exchange  Brokers  must 
be  licensed.  Rev.  Stats.  §  5203.  A  savings  bank  whose 
president  acts  on  behalf  of  the  bank  as  a  money  Broker 
and  exchange  dealer  need  not  be  licensed.^ 

'  Banta  vs.  Chicago,  supra.  *  Henderson   vs.   State,    50   Ind. 

'  Hustis  vs.  Pickands,  27  111.  App.  234. 

270.  ^  State    vs.    Field,    49    Mo.    270. 

'  Johnson  vs.  Williams,  36  N.  E.  For  other  cases  on  this  subject,  see 

Rep.  167.     See  also  O'Neill  vs.  Sin-  footnote    to    Missouri    Rev.   Stat, 

clair,  153  111.  525.  pp.  1212,  12ia 


License.  177 

In  Michigan,  Brokers  and  exchange  dealers  shall  not  en- 
gage in  such  business  until  a  verified  certificate  giving  cer- 
tain i)articulars  is  first  filed  with  the  county  clerk.  Comp. 
Laws,  §§  5271-5276. 

Coupon  Brokers  must  be  licensed  in  Virginia.  Code, 
§  402,  L.  lSS3-t,  §  05 ;  also  Stock-brokers.  L.  1883-1884 
§§  58-60.» 

All  the  foregoing  enumerated  States  (nine  in  number) 
comprise  some  of  the  sixteen  States  in  the  principal  cities 
of  which  stock  exchanges  have  been  organized.  The  re- 
maining seven  States  have  not  enacted  any  licensing  laws 
as  to  Stock-brokers. 

Other  States  (in  which  stock  exchanges  have  not  been  or- 
ganized) also  provide  for  the  licensing  of  Stock-brokers.  In 
Tennessee,  a  Broker's  privilege  tax  is  not  payable  by  one 
who  sells  stocks  or  bonds  purchased  with  his  own  moneys.^ 

In  West  Virginia  Stock-brokers  must  be  licensed.  Code, 
ch.  32;§  2. 

The  city  of  Little  Rock  in  Arkansas  has  power  under  an 
act  passed  in  the  vear  1875  (§  12)  to  license  Brokers  who 
buy  or  sell  scrip,  bonds  or  exchange.'' 

Under  tiie  United  States  Internal  Revenue  Act  of  1864 
(now  repealed),  bankers  as  such,  Brokers,  and  bankers  doing 
lousiness  as  Brokers  were  required  to  pay  certain  taxes 
upon  their  transactions.^ 

•Com.  vs.  Lucas,  84  Va.  303.  Blatch.  243;  Clark  vs.   Hailey,   12 

'  State  vs.  Duncan,  S4  Tenn.  7r..  lilatch.  1.%;  s.c,  afT'd  21  Wall.  284; 

*  City  of  Little  Kock  vs.  Burton,  Hankers'  Cases,  11  Op.  Atty.  Clen. 

33  .\rk.   130.  |,S2;  Selden  vs.  Ivjuituble  Trust  Co., 

U'lurk  vs.  Gillx-rt,  .')  Bhitdi.  330;  'M  U.S    110;  Warren  vs.  Sliook,  91 

United  States  vs.  Cuttinu,  3  Wall.  T.   S.    701,    followed    in   State   vs. 

441 ;  riiit«-<l  States  vs.  Fisk,  3  Wall.  Duncan,  10  Lea  (T«"i»),  75. 
•ll.'j;       .Vnnhnip     vs.     Slujok,       10 

12 


178  Stock-brokers  aud  Stock  Exchanges. 

By  the  act  of  June  13,  ISOS  (30  U.  S.  Stats,  at  Large 
ch.  44S),  coiuinonly  spoken  of  as  the  AVar  Revenue  Act, 
ail  annual  special  or  license  tax  of  $50  was  imposed  upon 
hankti-s  and  a  similar  tax  upon  stock  and  bill  Brokers,  and 
in  tlie  case  of  sales  of  stocks  the  seller  was  required  to  de- 
liver to  the  buyer  a  meuiorandum  of  the  sale,  sliowing 
the  date  of  the  sale,  the  name  of  the  seller,  the  amount  of 
the  sale  or  tlie  matter  or  thing  to  which  it  referred.  A  tax 
of  two  cents  for  each  $100  of  the  face  value  of  the  sale  was 
imposed  by  the  act,  and  adhesive  stamps  denoting  the 
amount  of  the  tax  were  required  to  be  affixed  to  such 
memorandum. 

A  memorandum  and  stamps  were  also  required  upon 
each  sale  or  agreement  to  sell  any  products  or  merchan- 
dise at  any  exchange,  board  of  trade,  or  similar  place. 

The  constitutionality  of  the  provision  requiring  such 
memorandum  and  stamping  has  been  upheld  in  Nicoll  vs. 
Ames,'  but  since  these  provisions  were  entirely  repealed  by 
the  act  of  April  13,  1902  (32  Stats,  at  Large,  ch.  500),  it  is 
not  deemed  necessary  to  do  more  than  mention  the  cases. 
The  War  Revenue  Act  was  also  considered  in  McClain  vs. 
Fleshman.^ 

The  question  of  the  taxability  of  seats  in  the  Stock  Ex- 
change is  taken  up  in  another  place  {ante,  pp.  163-4). 

Stock  Exchanges  have  been  organized  in  the  following 
cities  of  the  United  States,  viz. :  New  York,  Philadelpliia, 
Chicago,  Boston,  St.  Louis,  San  Francisco,  New  Orleans, 
Denver,  Baltimore,  Cleveland,  Cincinnati,  Detroit,  Kansas, 


'  173  U.  S.  509.     Also  in  United    Fed.  880.     Also  in  White  vs.  Treat, 
States  vs.  Thomas,  115  Fed.  207.        100  Fed.  290. 
'  105  Fed.  610;  s. con  appeal,  106 


Lej;al  Relation  to  Client.  179 

Providence,  Indianapolis,  Richmond,  Washington,  Pitts- 
burg, and  Los  Angeles. 

About  twenty  per  cent  of  the  members  of  the  Xew  York 
Stock  Exchange  are  known  as  "  Room  Traders,'"  i.  e.  they 
devote  themselves  exclusively  to  dealing  in  securities  on 
their  own  account,  and  in  this  respect  they  resemble  the 
London  Stock  Jobbers.     See  cha])ter  IX. 

Other  members  of  the  various  Stock  Exchanges  buy  and 
sell  securities  for  themselves,  besides  transacting  brokerage 
business  for  their  clients. 

n.  Legal  Relation  of  Stock-broker  to  his  Client. 

Considerable  discussion  has  arisen  in  the  cases,  especially 
those  in  the  State  of  New  York,  as  to  the  precise  relation 
which  exists,  where  a  Broker  witli  his  own  money  purchases 
or  sells  stocks,  etc.,  for  his  Client,  for  the  purposes  of  specu- 
lation. 

Does  the  Stock-broker  in  such  a  transaction,  in  the  ab- 
sence of  an  express  agreement  defining  the  relation,  unite 
in  himself  the  characters  of  "  Broker,"  "  pledgee,"  and 
"  trustee  < " 

The  importance  of  this  question  is  obvious,  because,  if  it  be 
answered  affirmatively,  it  would  seem  to  folhjw  tiuit  all  of 
the  incidents  and  conso(|uenccs  of  those  characters  would 
attach  to  the  Broker,  in  iiis  dealings  with  his  Client;  but, 
on  the  other  hand,  if  the  (piestion  be  answered  negatively, 
tiie  sitiiph;  relation  (>\'  debtor  and  creditor,  arising  out  <^f  a 
breach  of  conti-act,  would  exist. 

The  emb:irrassuienl  of  the  (|uestion  arises  from  the  fact 
that,  in  tin;  e.'isc;  of  an  ordinary  pnrchas(!  of  stocks  for  sper- 
ulation,    on  a  margin,  the  Stock-broker,    without  literally 


180 


Stock-brokers  and  Stock  Exchanges. 


filling  the  techuiciil  delinitions  of  "  Broiler,"  "pledgee,"  or 
"  trustee,"  comes  within  the  purview  of  all  of  those  terms. 

lie  is  a  Broker  because  he  has  no  interest  in  the  transac- 
tion, except  to  the  extent  of  his  commissions;'  he  is  a 
pledgee,  in  that  he  holds  the  stock,  etc.,  as  security  for  the 
repayment  of  the  money  he  advances  in  its  purchase;'^  so 
he  is  a  trustee,  for  the  law  charges  him   with  the  utmost 


'Hays  vs.  Currie,  3  Sand.  Ch. 
Ketchum's  ed.  638  (marginal  paging 
5S5). 

'  The  question  of  a  Stock-broker's 
relation  to  a  client  for  whom  he 
makes  advances,  on  stocks  pur- 
chased by,  and  held  by,  him  as 
security  for  his  advances,  came  in 
question  incidentally  in  a  recent 
case  (People  ex  rel.  Sands  vs.  Feit- 
ner,  76  App.  Div.  620;  79  N.  Y. 
Supp.  1143,  no  opinion,  aff'd  173  N. 
Y.  647).  The  relator  contended 
(see  New  York  L.  J.  November  8, 
1902,  giving  the  arguments  of  coun- 
sel) that  a  large  sum  alleged  to  be 
due  by  him  to  his  Stock-brokers, 
should  be  allowed  as  a  deduction  in 
assessing  his  personal  property  for 
tax  for  the  year  1901,  on  the  ground 
that  his  relation  with  his  Broker 
was  that  of  pledgor  and  pledgee, 
and  that  he  absolutely  owned  the 
stocks  purchased  for  him,  and  owed 
the  Brokers,  as  pledgees,  the 
amount  of  their  advances.  The 
claim  of  the  tax  commissioners  was 
that  as  the  only  liability  of  relator 
was  contingent  on  a  fall  in  the  price 
of  the  securities,  he  had  shown  no 
present  liability  under  the  contract 
with  his  brokers,  and  a.s  it  was  uncer- 
tain what,  if  an^-thing,  would  ever 
become  due  from  him  to  his  Brokers, 


the  deduction  should  not  be  allowed. 
The  question  was  decided  at  Special 
Term  adversely  to  the  relator's 
contention,  and  this  decision  was 
unanimously  aflirmed  by  the  .\p- 
pellate  Division,  whose  decision 
was  affirmed  by  the  Court  of  .\p- 
peals  on  the  ground  that  the  ques- 
tion of  fact  thus  passed  upon  was 
not  reviewable. 

In  a  prior  case  in  the  Surrogate's 
Court  it  was  held,  in  a  similar  state 
of  facts,  that  the  client's  title  to  the 
stocks  was  not  absolute  but  he  held 
merely  the  rights  of  a  pledgee  with 
relation  to  it,  the  Brokers  lieing  the 
owners  of  the  property  at  law,  sub- 
ject to  the  client's  right  to  redeem 
upon  paying  the  entire  amount  of 
the  debt,  and,  therefore,  on  the 
client's  death,  when  the  securities 
were  sold  by  the  Brokers  for  a  sum 
less  than  what  was  due  them,  the 
A'alue  of  the  stocks  sold  was  not 
part  of  the  decedent's  estate  for  the 
purpose  of  transfer  tax.  In  re 
Havemayer,  32  Misc.  416.  If  a 
Broker  sells  stock  on  his  own  ac- 
count to  his  client,  the  mere  fact 
that  he  acts  as  a  Broker  in  other 
transactions,  does  not  convert  the 
former  stock  into  a  pledge.  The 
relation  of  the  parties  as  to  that 
stock  IS  that  of  vendor  and  vendee. 


Legal  Kelatioii  to  Client.  181 

honesty  and  good  faith  in  his  transactions  ;  anil  whatever 
benetit  arises  therefrom  enures  to  the  cestal  (jiw  t/'U6'i} 

The  circumstances  attendant  upon  an  ordinary  transac- 
tion between  a  Broker  and  his  Client  in  «.  stock  speculation 
are  carefully  described  by  Hunt,  Ch.  J.,  in  a  leading  case  in 
the  State  of  Xew  Tork.^ 

"  The  customer  employs  the  Broker  ...  to  buy  certain 
stocks  for  his  account,  and  to  pay  for  them,  and  to  hold 
them  subject  to  his  order  as  to  the  time  of  sale.  The  cus- 
tomer advances  ten  per  cent,  of  their  market  value,  and 
agrees  to  keep  good  such  pi-oportionate  advance,  according 
to  the  fluctuations  of  the  market.  .  .  . 

"  The  Broker  undertakes  and  agrees  : 

"  1.  At  once  to  buy  for  the  customer  the  stocks  indicated. 

"  2.  To  advance  all  the  money  required  for  the  purchase, 
beyond  the  ten  ])er  cent,  furnished  by  the  customer. 

"  3.  To  carry  or  hold  such  stocks  for  the  benefit  of  the  cus- 
tomer, so  long  as  the  margin  of  ten  per  cent,  is  kept  good, 
or  until  notice  is  given,  by  either  party,  that  the  transaction 
must  be  closed.  An  appreciation  in  tlie  value  of  the  stocks 
is  the  gain  of  the  customer,  and  not  of  the  Broker. 

"  4.  At  all  times  to  have  in  his  name,  or  under  his  control, 
ready  for  deliver^',  the  shares  purchased,  or  an  equal  amount 
of  other  shares  of  the  same  stock. 

"  5.  To  deliver  such  shares  to  the  customer,  when  re- 
Leahy  vs.  Lobdell,  80  Fed.  Rep.  '  .Markliaiii  vs.  Jaudon,  11  Y.  N. 
00.5.  235.     This  analysis  of  tlic  oi)iiKa- 

'  That  the  position  which  aStoek-  tion  of  the  parties  to  a  purchjise  of 
l>roker  occ-upies  in  relation  to  liis  stocks  on  nuir^;in  wa-s  adopted  liy 
principal  is  that  of  a  tni.ntec  has  tlie  Connect icnt  S\ipronic  Court. 
liMMi  held  in  Tavlor  vs.  Pluiner,  3  SkifT  vs.  Stoddard,  (i.'J  Conn.  IDS; 
M  .t  S.  5fi2;  Ex  parte  CVxjk.  I  Ch  Jl  L.  H.  .\  ll.J. 
Oiv.  123. 


182  Stock-ln'ok<'rs  and  Stock  Kxchuuges. 

quire<l  by  him,  upon  the  receipt  of  the  advances  and  com- 
missions accruing  to  the  Broker  ;  or, 

''  0.  To  sell  such  shares,  upon  the  order  of  the  customer, 
uj)()n  payment  of  the  like  suras  to  him,  and  account  to  the 
customer  for  the  proceeds  of  sucli  sale. 

"  Under  this  contract  the  customer  undertakes  : 

"  1.  To  pa}'  a  margin  of  ten  per  cent,  on  the  current 
market  value  of  the  shares. 

"  2.  To  keep  good  such  margin  according  to  the  fluctua- 
tions of  the  market. 

"  3.  To  take  the  shares  so  purchased  on  his  order  whenever 
required  by  the  Broker,  and  to  pay  tlie  difference  between 
the  percentage  advanced  by  liim  and  the  amount  paid  there- 
for by  the  Broker."^ 

It  may  be  well  to  set  forth  the  history  of  an  ordinary 
transaction  between  a  Client  and  Broker,  even  with  a  little 
more  detail  than  that  contained  in  the  foregoinjj:  extract. 
The  ordinary  margin  paid  on  opening  an  account  with  a 
Broker — that  is,  in  ordering  him  to  buy  or  sell  securities — is 
ten  per  cent.^  The  margin  may  be  less  than  this,  or  fre- 
quently none  is  advanced,  according  to  the  confidence  which 
the  Broker  has  in  the  ability  of  the  Client  to  respond  to 
ultimate  loss.  But,  whether  the  Broker  advance  all  or  only 
the  principal  portion  of  the  sum  invested  in  the  securities, 
the  relation  of  the  parties  is  unchanged.  The  fact  exists 
that  the  Broker  looks  to  the  principal  for  an  indemnity  upon 
the  entire  transaction.  The  Client,  having  given  the  Broker 
an  order  to  buy  or  sell,  either  in  writing  or  verbally,  the 
next  step  in  the  transaction  is,  that  the  Broker  goes  into  the 


'  See   also  Brass  vs.   Worth,   40       ^  Markliam  vs.  Jaudon,  41  N.  Y, 
Barb.  648.  235. 


Legal  Kelatiou  to  Clieut.  183 

Stock  Exchange  and  executes  the  business,  making  a  verbal 
contract  therefor  with  another  Broker.  Frequently  the 
Broker,  upon  receiving  an  order,  deputes  another,  or  subordi- 
nate. Broker  to  do  the  business.  This  is  contrary  to  the 
general  principal  of  law,  that  an  agent  cannot  delegate 
his  business  to  another — "  delegata  potestas  non  potest 
delegar'i  i'"^  but  it  is  justified  by  the  general  usage  of  Wall 
Street,  of  which  the  Client  has  express  or  implied  knowledge.* 

The  exact  transaction  in  the  Stock  Exchange  is  as  follows: 

The  selling  Broker  offers  for  sale  his  securities,  and  if  there 
is  a  Broker  present  who  Avishes  to  purchase,  the  contract  is 
completed,  upon  his  assenting  to  the  terms  mentioned. 

All  offers  to  buy  or  sell  securities  shall  be  for  100  shares 
of  stock,  or  for  $10,000  par  value  of  bonds,  unless  otherwise 
stated.^ 

Some  rules  of  the  Stock  Exchange  are  here  given  which 
further  illustrate  the  transaction  in  the  Stock  Exchange. 

All  bids  and  offers  made  and  accepted  in  accordance  with 
the  rules  of  the  Stock  Exchange  shall  be  binding.^ 

Bids  and  offers  may  be  made  only  as  follows : 

(a)  "  Cash,"  i.  e.  for  delivery  upon  the  day  of   contract. 

(J)  "  Tleguhir  way,"  i.  e.  for  delivery  upon  the  business 
day  following  the  contract. 

(c)  "  At  three  days,"  i.  e.  for  delivery  upon  the  third 
d;iy  following  the  contract. 

{(1)  "  i>uyer's,"  or  "  Seller's  "  options  for  not  less  than  four 
days,  nor  more  than  sixty  days. 


'  Leake's  DIk-  Lhw  of  ('out.  4S2.  Stock     Exchange,     Hull's    for    tlir 

'  .Sc«;  oil  thiH  H>iljj(!ct,  HulxliviHion  traii.saction  or  coiKluct  of  businexs, 

X.,  "  Wlnrii   I'.rok«;r  can  act  by  mib-  Art.  XXIII.  §  2. 

Btitutc,"  p.  :j'Jl.  *  Id.    5  1. 
*  CotiMtitutiun  of  tlie  New   York 


184  Stock-brokers  and  Stock  Kxcliant^es. 

Bids  ami  offers  iiiuler  oiicli  ol'  iliese  specilications  may  be 
made  simultaneously  us  being  essentially  different  })roposi- 
tions,  and  may  be  separately  accepted  without  precedence 
of  one  over  another. 

Bids  and  offers  made  without  stated  conditions  shall  be 
considered  to  be  in  the  "  regular  way." 

On  transactions  for  more  than  three  days  written  con- 
tracts shall  be  e.Kchanged  on  the  day  following  tlie  transac- 
tion, and  shall  carry  interest  at  the  legal  rate,  unless  other- 
wise agreed ;  on  such  contracts  one  day's  notice  shall  be 
given,  at  or  before  2:15  P.  M.,  before  the  securities  shall  be 
deliverable  prior  to  the  maturity  of  the  contract. 

On  offers  to  buy  "  Seller's  Option,  or  to  sell  "  Buyer's 
Option,"  the  longest  option  shall  have  precedence.  On  of- 
fers to  buy  "  Buyer's  Option,"  or  to  sell  "  Seller's  Option," 
the  shortest  option  shall  have  precedence.^ 

No  party  to  a  contract  shall  be  compelled  to  accept  a 
substitute  principal,  unless  the  name  proposed  to  be  sub- 
stituted shall  be  declared  in  making  the  offer,  and  as  a  part 
thereof.^ 

"When  a  disagreement  arising  from  a  transaction  in  se- 
curities  shall  be  discovered,  the  money  differences  shall 
forthwith  be  established  by  purchase  or  sale  by  the  chair- 
man, or  by  mutual  agreement.^ 

All  deliveries  of  securities  must  be  made  before  a  quarter 
after  2  o'clock  P.  M.,  otherwise  the  contract  may  be  closed 
"  under  the  rule,"  in  the  manner  provided  by  Art.  XXVIII.^ 

On  half  holidays  securities  sold  for  "  cash  "  must  be  de- 
livered and   received   at  or   before   11: 30  o'clock  A.  M., 


'  Id.  §  3.  » Id.  Art.  XXX. 

'  Id.  .\rt.  XXIV.  §  9.  ••  Art.  XXVI.  §  1. 


Legal  Relation  to  Client.  185 

otherwise  the  contract  may  be  closed  "■  under  the  rule " 
(Art.  XXYIII.),  after  11:40  o'clock  A.  M.' 

In  all  deliveries  of  securities,  the  party  delivering  shall 
have  the  right  to  require  the  purchase  money  to  be  paid 
upon  delivery ;  if  delivery  is  made  by  transfer,  payment 
may  be  required  at  time  and  place  of  transfer.'- 

But  to  continue :  the  Brokers,  in  making  transactions 
with  one  another,  do  not  know  for  whom  tliey  are  made, 
the  names  of  the  principals  being  jealously  concealetl.  One 
Broker  looks  to  the  other  contracting  Broker  to  carry  out  the 
transaction,  and  in  practice  there  is  no  attempt  made  to 
enforce  any  liability  against  the  principal  should  he  become 
known.  Here  another  question  arises,  whether  there  is 
any  liability  on  the  part  of  the  unknown  principal  for  the 
default  of  his  Broker  ?  Is  there  any  privity  between  him 
and  the  other  contracting  Broker?  "We  shall  not  attempt 
to  answer  these  questions  in  this  place,  but  they  are  sug- 
gested as  they  arise  in  tiie  history  of  the  transaction.^ 

In  transactions  for  three  days  or  less,  there  is  no  written 
contract  as  a  general  rule  between  the  Brokers,  each  one 
merelj'  dotting  down  the  transaction  made.  On  transac- 
tions for  more  than  three  days  written  contracts  must,  as 
alreadv  stated,  be  exchanged  on  the  following  day.  But 
as  to  every  transaction  it  is  the  (hity  of  every  humhIjcm-  to 
report  eacli  of  liis  transactions  as  j)i'oni))tly  as  |)()ssil)l('  at 
his  office,  wiiere  he  shall  furnish  op|)ortunity  for  prompt 
comparison.'  If  there  is  no  written  contract  the  contract 
is  invalid  in  a  niajority  of  the  States  under  the  Statute  of 
Fraud.s.^      P.ut    the  rules   (Art.    .Will.    ,^    1)    make    theui 

«Id.  S5.  *  Art    .XXIV.  §  1  ot  soq. 

Ufi.  .\rt.  X.XV.  i  1.  'So*'  post,  eh.  VII.  tit.  "Stiitute 

'.Sec  th'w  Hubjcct  conHidercnl,  <h.  of  KruudH." 
VII. 


186  Stock-brokers  and  Stock  Kxchaiiges. 

inviolable  between  the  members  in  the  tribunal  known  as  the 
"  Arbitration  Committee." 

On  the  f()liowin<i:  dav,  if  the  transaction  is  made  "  in  the 
regular  way,"  the  stocks  are  duly  delivered  at  the  office 
of  the  purchasing  Broker  by  the  selling  Broker,  who  re- 
ceives payment  for  them.  If  tlie  sale  be  made  on  time,  the 
transaction  is  C(>m})leted  when  the  time  expires.  The 
stock,  when  receivetl,  remains  in  the  office  of  the  purchas- 
ing Broker  to  await  the  further  orders  of  the  Client.  Some- 
times the  stock  is  held  by  the  Broker  with  merely  a  general 
power  of  attorney  in  bhiiik  attached  to  or  endorsed  on  it. 

The  receiver  of  the  shares  of  stock  shall  have  the  option 
of  requiring  the  delivery  to  be  made  either  in  certificates 
therefor  or  by  transfer  thereof  ;  except  that  in  cases  where 
personal  liability  attaches  to  ownership,  the  seller  shall 
have  the  right  to  make  delivery  by  transfer.  The  right 
to  require  receipt  or  delivery  by  transfer  shall  not  obtain 
while  the  transfer  books  are  closed.' 

Deliveries  of  securities  on  contracts  subject  to  the  rules 
of  the  Exchange  shall  in  all  cases  confoi'in  to  the  require- 
ments for  regularity  which  may  be  made  from  time  to 
time,  by  the  committee  on  securities.^ 

The  buyer  must,  not  later  than  2:15  o'clock  P.  M.,  accept 
and  pay  for  all  or  any  portion  of  a  lot  of  stock  contracted 
for,  which  may  be  tendered  in  lots  of  one  lumdred  shares,  or 
multiples  thereof  ;  and  he  may  buy  in  "  under  the  rule"  the 
undelivered  portion,  in  accordance  with  the  provisions  of 
Article  XXVIII.  This  rule  shall  also  apply  to  contracts 
for  b(mds  where  tender  is  made  in  lots  of  $10,000,  or 
multiples  thereof.^ 

>  Constitution,  Art.  XXV.  §  2.  '  Id.  §  4. 

»Id.  §3. 


Legal  Relation  to  nient.  187 

Usually  the  stock  is  ti'aiisf erred  on  the  books  of  the  Com- 
pany in  the  name  of  the  Broker,  rarely  in  the  name  of  the 
principal.  This  stock  is  considered  as  the  Client's,  subject 
only  to  the  lien  of  the  Broker  for  advances  and  commissions. 
The  Broker  collects  the  dividends,  and  pays  assessments 
upon  it,  if  any  be  levied,  and  the  same  remains  in  his  hands 
through  the  whole  transaction  until  it  is  sold,  the  Client 
never  having  possession  of,  and  rarely  ever  seeing,  the  stock. 
Upon  the  purchase  of  the  stook,  the  Broker  sends  a  notice 
to  his  Client  giving  the  price  and  the  name  of  the  Broker 
from  whom  he  has  j)urchased.  What  effect  this  would 
have  upon  a  contest  between  the  unknown  principal  and 
the  other,  or  selling,  Broker  is  still  another  question.  Fre- 
quently a  Broker  is  himself  a  speculator,  and,  in  executing 
an  order  for  his  principal,  unites  a  purchase  or  sale  on  his 
own  account.  Finally,  the  Broker  in  many  instances  may 
have  two  Clients,  who,  at  the  same  time,  give  him  countei-- 
orders,  the  one  to  buy  and  the  other  to  sell,  which  the  Bro- 
ker frequently  executes  at  the  market  price,  but  without 
any  real  sale  or  purchase,  merely  making  cross-entries  in 
his  books.  In  the  absence  of  any  fraud  or  any  damage  to 
the  Clients,  can  such  transactions  stand  ?  During  the  time 
the  stock  or  securities  remain  in  the  possession  of  the  Bro- 
ker, he  uses  them  to  raise  money  with  which  to  carry  on  his 
business,  and  no  attempt  is  made  to  keep  the  stocks  sepa- 
rate, or  to  keep  the  identical  certiticat<.'s  on  hand,  the  Client 
usually  being  satislied  if  the  Broker  is  able  to  deliver  the 
number  of  shares  purchased,  without  any  regard  to  particu- 
lar certificates.  According  to  the  strict  legal  (Icliiiitioii,  it  is 
manifest  that  a  Stock  brokn-,  in  transactions  such  as  those 
dcscrilwd  abf)ve,  is  not  eiiiljraccd  within  the  term  "  Ihoker." 

"  iirokers"  have  been  defined  In  a  standard  legal  le.xicog- 


188  Stock-brokers  and  Stock  Exchanges. 

rapber  to  be  "  those  who  aic  engaged  for  others  In  the 
negotiation  of  contracts  relative  to  property  with  the  cus- 
tody of  ivhicli  they  have  no  concern  ;  " '  and  "  Stock-brokers  " 
as  "  those  employed  to  buy  and  sell  shares  of  stocks  in  incor- 
porated I'onipanies  and  the  indebtedness  of  governments."^ 
The  distinctions  between  a  Stock-broker  and  an  ordinary 
Broker  are  tersely  summarized  by  Woodruff,  J.,  in  his 
dissenting  ojiinion  in  the  well-known  case  of  ]\[arkham  vs. 
Jaudon,^  in  this  language :  "  In  the  first  place,  the  Stock-dealer 
who  is  employed,  though  called  a  Stock-broker,  does  not  act 
as  Broker  in  this  transaction.  It  is  no  part  of  the  oflice  or 
duty  of  a  Broker  to  pay  the  price.  It  is  no  part  of  the  office 
or  right  of  a  Broker  to  receive  the  property,  still  less  to  take 
the  title  to  his  own  name.^  In  this  transaction  he  acts  in  a 
peculiar  business,  in  his  own  name  and  on  his  own  responsibil- 

*  1  Bouv.   L.  Diet.  Rawle's  Rev.  calling  of  great  responsibilities,  in 

title  "Broker";  Ewall's  Evans  on  which    punctuality,    honesty,    and 

Agency,     Bedford's    American    ed.  knowledge  arc  required."     Per  Van 

p.  36;  Mechem  on  Agency,   §§  13,  Vorst,  J.,  White  v.s.  Brownell,  3  .\b. 

927,  936;  Reinhard  on  .\gency,  §  21 ;  (X.  Y.)  Pr.  (n.  s.)  326. 

Huffcut  on  Agency,  §  112;  Tiffany  Ml    X.    Y.    256;    Northrup    vs. 

on  Agency,  p.  224;    Braun  vs.  City  Shook,  10  Blatch.  243. 

of  Chicago,  110  111.  at  p.  194.  *  A  Broker  has  not  the  custody  of 

'Ibid.;  Anderson's  Law  Diet,  the  goods  of  his  principal;  he  is 
title  "Broker";  Black's  Law  Diet,  mereh' empowered  to  effect  the  con- 
same  title.  See  also  Clark  vs.  Pow-  tract  of  sale  or  purchase  on  his  be- 
ell,  1  Xev.  &  M.  494,  arguments  of  half.  Chitty  on  Cont.  (11th  Am.  ed.) 
counsel  pro  and  con.;  Ab.  L.  Diet.  274;  Paley  on  Ag.  13;  Story  on  Ag. 
title  "Broker";  Banta  vs.  Chicago,  (9th  ed.)  §  28  et  seq.  The  func- 
172  111.  204;  s.  c.  40  L.  R.  A.  611.  tions  of  a  Stock-broker  are  thus 
".A.  Broker  is  an  agent  simply.  He  broader  than  tho.se  of  the  ordinary 
transacts  business  not  for  himself.  Broker;  some  of  these  broader  fune- 
but  for  another.  He  is  a  middle-  tions  pertain  more  nearly  to  the 
man,  a  negotiator  between  other  functions  of  factors  or  Ijankers,  but 
persons  for  a  compensation.  A  their  exercise  does  not  make  the 
Stock-broker  deals  in  stocks  of  Stock-broker  any  the  less  such, 
moneyed  corporations  and  other  se-  Banta  vs.  Chicago,  supra. 
curities  for  his  principal.     It  is  a 


Legal  Kelatioii  to  Client.  189 

ity,  protected  against  loss  by  the  indemnity  furnished,  or  by 
the  agreement  to  be  furnished  to  him.  The  idea  of  mere 
af^ency  ordinarily  suggested  by  the  name  Broker  does  not, 
therefore,  arise  out  of  the  fact  that  the  dealers  in  stocks  for  ac- 
count of  others,  as  to  profit  and  loss,  are  called  Stock-brokers. 
In  the  next  place,  the  transaction,  according  to  the  intent 
and  purpose  of  the  employment  of  the  Broker,  does  not  con- 
template that  the  customer  will  ever  receive  the  stock,  or 
own  it.  It  may  be  that  if  the  Broker  desires  to  close  his 
connection  with  the  transaction,  the  customer,  if  he  pays 
the  cost,  interest,  and  all  commissions  which  the  Broker  has 
earned,  or  is  entitled  to  earn,  will  receive  the  stock.  Whether 
he  may  so  insist  or  nut  is  a  collateral  question  ;  and,  if 
he  be  so  entitled,  it  will  nevertheless  be  true  that  this  is  not 
in  pursuance  of  the  arrangement,  but  a  departure  from  it; 
for  the  intent  is,  that  the  stock  shall  be  carried  by  the  Bro- 
ker until  directed  to  be  sold,  the  customer  never  having 
the  title  to  the  stock  at  all.  And,  finally,  in  my  opinion, 
the  transaction  is  an  executory  agreement  for  a  pure  specu- 
lation in  the  rise  and  fall  of  stock,  which  the  Broker,  on 
condition  of  perfect  indemnity  against  loss,  agrees  to  carry 
through  in  his  own  name  and  on  his  own  means  or  credit, 
accounting  to  his  customer  for  the  profits,  if  any,  and  hold- 
ing him  responsible  f(;r  the  loss.  " 

Notwithstanding  these  technical  differences,  the  decided 
inclination  of  the  courts  has  l)een  to  visit  a  Stock-broker  with 
all  of  the  res|X)nsibilitiesof  a  IJroker  and  pledgee,  and,  as  we 
shall  h(;reafter  see,  to  confer  u})on  him  all  the  advantages 
of  those  relations. 

It  is  itii])!ic(lly  conceded  by  Mr.  Justice  Woodrnlf,  and  all 
the  .'idv(x;at<;s  of  his  view  of  the  law,  that  wlu'iv  liic  Slofk- 
broker  makes  purcha.s».'S  of  .stock,  etc.,  for  his  principaly'or 


190  Stock-brokers  and  Stock  Exchanges. 

invest  1116)11,  with  money  furnished  by  the  former,  the  rela- 
tion of  pledgor  and  pledgee  exists.' 

It  is  also  conceded  that  when  stock,  etc.,  is  purchased  on  a 
margin  for  the  Client,  although  it  does  not  become  the  prop- 
ert}'  of  the  latter,^  together  with  all  its  future  dividends  and 
earnings  ;^  yet  that  the  Client  is  entitled  to  the  possession  of 
such  stocks,  etc.,  upon  paying  the  money  represented  in  their 
purchase,  Avith  the  commissions  of  the  Broker.'' 

So  it  has  been  decided  that  a  pledgee  of  stock  is  not  liable 
for  a  loss  occasioned  by  his  neglect  to  sell  the  stock,  it  having 
depreciated  in  his  hands  till  it  became  worthless,  when,  by 
the  contract  between  the  parties,  the  right  to  sell  the  stock 
had  been  conferi-ed  upon  the  pledgee  or  a  third  person ;  and 
the  pledgee  has  never  refused  to  transfer  the  stock  for  the 
purpose  of  a  sale,  and  the  pledgor  has  never  requested  that  a 
sale,  should  be  made.^ 

It  has  been  also  held  that  a  Stock-broker  is  not  liable  where 
spurious  securities  are  purchased  by  him  for  a  Client  in  the 
regular  course  of  business.  And  if  he  sell  stocks  or  secui'ities 
for  his  principal,  which  turn  out  to  be  spurious,  and  the  Bro- 
ker, in  consequence,  repays  the  purchase- money  to  the  buyer, 
he  can  recover  the  same  from  the  principal.^ 

So  if  the  pledge  be  stolen  from  the  Broker,  he  is  not  liable 
unless  the  theft  arose  from,  or  was  connected  with,  a  want 
of  ordinary  care  on  his  part.' 

'  Markham  vs.  Jaudon,  41  X.  Y.  133;  O'Neill  vs.  Whigham,  87  Pa.  St. 

235,  at  257  and  258;  also  Grover,  J.,  394. 

s.  c.  at  247.     See  also  Baker  vs.  '  Lamert  vs.  Heath,  15  M.  &  W. 

Drake,  53  X.  Y.  211,  at  216.  486;  s.  c.  Lambert  vs.  Heath,  15  L. 

'  Id.  J.  Exch.  298;  Mitchell  vs.  Xewhall, 

» Id.  15  M.  &  W.  308;  Westropp  vs.  Sol- 

*  Per   Grover,    J.,    Markham    vs.  omon,  8  C.  B.  373. 

Jaudon,  supra,  p.  247.  ''  2  Pars,  on  Cont.  (8th  ed.)  vol.  2, 

*  Howard  vs.  Brigham,  98  Mass.    p.  119  (bottom  paging);  Abbett  vs. 


Legal  Relation  to  Client.  191 

Again,  if  assessments  or '"culls"  are  made  upon  stocks 
which  a  Broker  holds  lor  a  Client,  the  liability  to  pay  tliera, 
if  any,  is  that  of  the  principal,  and  not  the  Broker.^  In  line, 
all  of  the  benefits,  liabilities,  and  disadvantages  of  ownerehip 
are  attached  to  the  principal,  while  the  Broker  has  no  in- 
terest in  the  transaction  except  to  the  extent  of  his  com- 
missions.'- 

In  view,  therefore,  of  these  considerations,  the  better  doc- 
trine would  seem  to  be  to  hold  the  Broker  to  the  responsi- 
bilities of  that  relation  ;  in  fact,  it  a}ipears  difficult  to  con- 
ceive of  any  other  relation  which  could  so  fully  harmonize 
with  the  circumstances  as  that  of  Broker  and  pledgee.^ 

The  leading  case  of  Markham  vs.  Jaudon  was  expressly 
overruled  on  the  question  of  the  measure  of  damages  in  an  ac- 
tion for  the  conversion  of  stocks  by  a  Broker.*  It  shoukl  also 
be  noticed  that  there  were  two  elaborate  dissenting  opin- 
ions by  "Woodruff  and  Grover,  J  J.,  on  the  question  of  the  rela- 
tion which  existed  between  the  Broker  and  the  Client,  the 
two  judges  just  mentioned  holding  that  the  Brokers  were 
not  pledgees,  but  that  they  held  the  stock  under  a  contract 
which  enabled  them  to  sell  upon  the  failure  of  the  Client  to 
furnish  margins.  Wht-n  this  question  came  again  before 
the  court  of  last  resort  in  Sew  Vork,^  Commissioners  Earl 
and  Reynolds  both  wrote  ()|)inions  allii-niing  the  judgment 
on  the specilic  ground  that  the  IJrokers  were  ])ledgees.  Hut 
in  the  case  of  Baker  vs.  Drako'^  (which  was  not  adverted  to 
in   the    preceding   casej,  overruling    Markham   vs.   Jaudon 

Frederick,  .OG  How.  I'r.  (\.  Y.)  68.  doctrine  criticised  in  In  re  Swift,  11 J 

Sec  .\rerit  vs.  S<|uirfiS,  1   Djily,  .'M7.  Fed.  Hep.  .31.S. 

'  .McCulla  vs.  Clark,  FtF,  Ga.  .W.  ♦  liaker  vs.  Drake,  r,:\  .N.  V.  21 1 . 

'  See  the  above  questions  coiisid-        *Stcntnii   vs.   Jerome,   51   N.   Y. 

ere«l  at  pp.  2 IS,  204.  ISO. 

•Sec,   however,    the    .New    York        '  .W  N.  V.  21 1. 


l'J2  Stock-biukcrs  and  Stock  Excliaiiges. 

upon  tlie  (jucstion  of  the  measure  of  danuige,  Mr.  Justice 
Tlapallo,  ill  alluding  to  the  latter  case,  said  :  "It  seems  to 
nu',  after  as  full  an  exammation  of  the  subject  as  circum- 
stances have  permitted,  that  the  dissenting  opinions  (per 
WoodrufT  and  Grover,  JJ.,  alluded  to  above)  embody  the 
sounder  reasons."  Yet,  when  Baker  vs.  Drake  came  before 
the  Court  of  Appeals  again  in  September,  1876,^  the  court 
exi)ressly  reiterated  and  reaffirmed  throe  propositions  laid 
down  in  the  case  of  Markham  vs.  Jaudon,  the  principal  one 
beinof  that  "  the  relation  of  Broker  and  Client,  under  the 
ordinary  contract  for  a  speculative  purchase  of  stock,  is  that 
of  pledgee  and  pledgor."  From  this  view  Rapallo  and 
Allen,  JJ.,  dissented. 

The  doctrine  of  Markham  vs.  Jaudon  was  again  distinctly 
reaffirmed  in  the  last-mentioned  respect  in  Gruman  vs. 
Smith,-  and  in  several  later  cases.^  And  this  now  seems 
to  be  the  established  law  in  IS'ew  York,^  and  is  sustained 


'  66  N.  Y.  518.  chum,  5  Robt.  (N.  Y.)  507;  Capron 

'  81  N.  Y.  25,  reversing  12  J.  &  S.  vs.  Thompson,  86  N.  Y.  418;  Gillett 

389.  vs.  Whiting,  120  N.  Y.  402;  Douglas 

'  See  cases  cited  in  following  note.  vs.  Carpenter,  17  App.  Div.  329;  45 

*  Gruman  vs.  Smith,  81  X.  Y.  25;  N.  Y.  Supp.  219;  Zimmerman  vs. 

Markham  vs.  Jaudon,  41  N.  Y.  235;  Heil,  33  N.  Y.  Supp.  391,  aff'd    156 

Morgan  vs.  Jaudon  (Ct.  of  App.),  4  X.  Y.  703.     Contrary  to  this  view  in 

How.  Pr.  (N.  Y.)  366;  Stenton  vs.  addition  to  the   cases   cited,  supra, 

Jerome,  54  N.  Y.  480;  Baker  vs.  are  Hanks  vs.  Drake,  49  Barb.  (N. 

Drake,  53  X.  Y.  211;  id.  66  X.  Y.  Y.)    186;   Schepeler   vs.    Eisner,    3 

518;  Ritter  vs.  Cushman,  7  Robt.  Daly,   11;  Sterling  vs.  Jaudon,  48 

(X.  Y.)  294;  Read  vs.  Lambert,  10  Barb.  (X.  Y.)  459,  which  have  all 

Ah.  Pr.  (n.  s.)  428;  McXeil  vs.  Tenth  been    exprcsslj'    overruled    in    the 

Xational  Bank,  .55  Barb.  (X".  Y.)  59  State  of  Xew  York, 

(reversed  on  other  points  in  46  X^.  Whether  the  relation  is  that  of 

Y.  325);  Clarke  vs.  Meigs,  22  How.  pledgor  and  pledgee,  or  that  of  a 

Pr.  (X.  Y.)  340;  Brass  vs.  Worth,  40  special   contract  under  which   the 

Barb.    (X.   Y.)    648;   Andrews   vs.  Broker  holds  the  stock,  the  Broker's 

Clerke,  3  Bosw.  585;  Taylor  vs.  Ket-  obligation  to  keep  the  same  or  an 


Legal  Relation  to  Client.  193 

in    the    United    States    generally   by   the   weight   of  au- 
thority.' 

The  theory  that  the  relation  which  exists  between  a 
Stock-broker  and  his  Client  in  an  ordinary  speculative  trans- 
action is  not  that  of  pledgor  and  pledgee,  is  mainly  based 
upon  the  argnment  ah  inconvenienti.  It  is  said  that  as 
stocks  are  a  fluctuating  species  of  property,  whose  value  is 
liable  to  be  wiped  out  in  a  moment,  the  burden  should  not  be 
put  upon  a  Broker  to  give  his  Client  notice  of  a  decline  or 
rise,  as  the  case  may  be,  and  to  make  a  demand  for  fur- 
ther margins.  But  this  argument  is  just  as  forcible  when 
applied  to  the  undisputed  case  of  a  pure  pledge,  where  it  is 
conceded  that  there  must  be  notice  to  the  pledgor  before  a 
sale  can  be  made,  as  where  the  owner  of  stocks  pledges  them 
to  secure  borrowed  money.  In  this  instance,  although  the 
stocks  are  liable  to  decline  and  leave  the  lender  without 


equal  quantity  of  stock  in  his  pos-  3  Sim.  153,  aff'd  by  House  of  Lords 
session,  is  the  same.  Taussig  vs.  in  5  Bli.  (n.  s.)  165.  The  text 
Hart,  58  N.  Y.  425.  writers  also  have  adopted  this 
*  Skiff  vs.  Stoddard,  63  Conn.  198,  view.  See  works  cited  in  Skiff  v& 
222;  21  L.  R.  A.  112;  Thompson  vs.  Stoddard,  supra,  at  p.  222  . 
Toland,  48  Cal.  99;  Cashman  vs.  In  tlie  carrying  of  executory  con- 
Root,  89  Cal.  373;  Kenfield  vs.  tracts  for  the  future  delivery  of 
Latham,  2  Cal.  Leg.  Hec  235;  grain,  when  neither  tlic  grain  nor 
Brewster  vs.  Van  Liew,  1 19  111.  554;  warehouse  receipts  are  delivercil, 
Gilpin  vs.  Howell,  5  Pa.  St.  41;  the  Broker  is  not  a  pledgee,  and  tlie 
Wynkoop  vs.  Seal,  64  Pa.  St.  301 ;  distinction  between  such  a  case  and 
E&ser  vs.  Linderman,  71  Pa.  St.  70;  the  ca.se  of  a.  carrj'ing  of  stock  on  a 
Maryland  Fire  Ins.  Co.  vs.  Dalrym-  margin  is  this:  The  stocks  are  de- 
ple,  25  Md.  212;  Baltimore  Ins.  Co.  livered  into  the  actual  poH.sc.ssion  of 
vs.  Dalrymple,  id.  J(i9;  Child  vs.  the  Broker  who  claims  it  a-s  the 
Hugg,  41  Cal.  519;Ch«'W  vs.  Louch-  plc<ige,  while  the  grain  l)ought  for 
helm,  SO  I'Y-d.  J{cp.  5(M)  (  "The  re-  his  customer  or  any  evidence  of 
lation  of  the  partieji  wjis  that  of  title  theretr)  is  not  delivered  to  the 
bailor  and  bailee").  The  sume  connnission  menhiiiit.  Curln'tt  vs. 
rule  would  seem  to  exist  in  En-  l.'nderwood,  K\  111.  321. 
gland'    Brookmaii    vs     Hothschild, 


194  Stock-brokers  and  Stock  Exchanges. 

security,  it  is  clear  that,  in  the  absence  of  express  agree- 
ment, thev  could  not  be  sold  without  Icfjal  notice.*  So  it 
has  been  held  that  ^Yhore,  instead  of  money,  the  Client  de- 
posits stock,  etc.,  as  margin,  the  relation  of  pledgor  and 
pledgee  exists.^ 

The  Broker  may  ahva3's,  in  the  outset,  protect  himself 
against  the  fluctuations  of  an  advance  or  decline  in  the  market 
by  exacting  sufficient  margins  to  meet  the  contingencies  of 
speculation  and  if  he  neglect  to  do  this,  he  should  not 
expect  the  law  to  aid  him. 

But  finally,  the  Broker  may  always  fully  insure  himself 
by  making  a  special  contract  with  his  Client,^  which  will 
enable  him  to  dispose  of  securities  in  any  manner  and  at 
any  time  that  may  be  agreed  upon  without  notice,  and  such 
contracts  tlie  law  will  uphold  and  carry  out.^ 

A  different  result  has  been  reached  in  Massachusetts. 
There  it  is  held  that  the  transaction  between  a  Broker  and 
his  Client  on  a  marginal  purchase  of  securities  stands  on 
the  footing  of  a  contract  by  the  Broker  to  deliver  the  shares 
on  the  payment  by  the  Client  of  so  much  money.  This 
doctrine  is  probably  peculiar  to  cases  arising  in  Massachusetts  ^ 
and  was  first  promulgated  in  the  case  of  Woods  vs.  Hays.* 

'Schouler    on    Bailm.    (3d    ed.)  '  In  re  Swift,  112  Fed.  Rep.  318; 

§  229.  Skiff  vs.  Stoddard,  63  Conn.  214;  21 

*  Lawrence  vs.  Maxwell,  53  X.  Y.  L.  R.  A.  111.  A  later  decision  in 
19.  See  also  Vaupell  vs.  Woodward,  Massachusetts,  however,  affirms 
2  Sandf.  Ch.  143;  De  Cordova  vs.  that  the  English  doctrine  on  the 
Barnum,  9  N.  Y.  Supp.  237,  aff'd  subject  is  the  same  as  that  of 
130  N.  Y.  615;  Mattem  vs.  Sage,  16  Massachusetts,  citing  Bentinck  vs. 
Daly,  142.  Bank     (1893),     2    Ch.    Div.     120, 

^  See  in  this  connection  remarks    140;    Chase  vs.  Boston,  180  Mass. 
by  Hunt,  Ch.  J.,  Markham  vs.  Jau-    458. 
don,  41  N.  Y.  244.  •  81  Mass.  375. 

*  Post,  subd.  (VI.)  of  this  chapter, 
p.  306. 


Legal  ReLitiou  to  Client.  195 

WMle  that  case  did  not  in  its  facts  present  a  marginal  pur- 
chase at  all,  and  if  it  stood  alone  might  not  be  decisive,^ 
it  has  in  subsequent  decisions  of  the  same  court  received 
the  interpretation  indicated  above.^  These  subsequent 
cases^  have  been  held  by  the  United  States  courts  to  de- 
clare the  rule  in.  Massachusetts  in  cases  arising  in  that  State, 
and  therefore  to  be  governed  by  its  law.^ 

And  a  recent  Massachusetts  decision  holds  that  the  legal 
title  is  in  the  Broker,  and  he  is  liable  to  pay  municipal  tax 
on  the  value  of  stocks,  carried  by  him  on  margins.'^  The 
question  of  the  Broker's  relation  to  his  customer  also 
came  up  in  the  case  of  Rice  vs.  "Winslow,^  in  which 
the  latter  sought  to  recover  margins  deposited  \Yith  his 
Broker  to  secure  the  purchase  of  securities  bought  and 
afterwards  sold  by  the  defendant,  on  the  ground  that,  under 
the  cases  cited,  the  relation  was  a  contractual  one,  and, 
that  being  so,  the  Broker  ultimately  sells  to  the  customer, 
and  that  sale  brought  the  transaction  within  the  first  clause 
of  §  2,  of  the  gaming  statute — L.  1890,  ch.  437  ;  but  the 
court  held  that  such  a  construction   was  a  mistake.     The 


'  In  re  Swift,  105  Fed.  Rep.  496;  *  In  re  Swift,  105  Fed.  Rep.  493; 
Jones  on  Collateral  Securities  (2d  s.  c.aff'd  112  Fed.  Rep.  310.  Itwa.s 
ed.),  §  49H,  n(jte.  suftf;ested  in  the  liust-named  ciuse 
'See  next  note,  3.  that  the  dilTerence  in  the  doctrines  of 
'  Co  veil  vs.  Loud,  135  Ma.ss.  41;  tiie  New  York  and  Ma.s.sachusetts 
Jordan  vs.  Weston,  IGS  Ma.ss.  401.  courts  was  one  of  name  only  and 
In  this  latter  case,  while  the  court  not  of  substance.  Theje  are,  how- 
recognized  the  rule  declared  in  ever,  differences  of  substance  which 
Covell  vs.  Loud,  there  waw  appar-  l>ecome  apparent  when  tiic  rcinc- 
cntly  soma  dcnibt  in  its  mind  of  the  dies  rcspcctivrly  for  conversion  and 
correctnciss  of  the  nile.  See  In  re  for  simple  breach  of  contract  arc 
Swift.    105   Fc<L   Rr-p.  40(>.      Hut   a  considered. 

later     decision    aflirmed     the    drx--  '  Chiwe    vs.    Hostoii,     ISO     Miuss. 

trine.     Cha»e  vs.  iJrwton,  iKOMass.  45S. 

458.  •  Kice  vs.  WIunImw,  I  so  M.iss  500. 


196  Stock-brokers  jiiid  Stock  Exchanges. 

relation  of  the  Broker  to  the  customer  was  that  of  an  agent, 
and  when  the  Ih-okcr  actually  bought  and  received  the  se- 
curities, there  was  no  violation  of  the  statute.  The 
contract  referred  to  in  the  statute  was  the  contract  to  buy, 
not  the  contract  to  carr}^  the  securities. 

I'})on  the  whole,  while  it  must  be  conceded  that  there 
are  apparently  some  incongruous  features  in  the  rela- 
tion,' there  seems  to  be  neither  difficulty  nor  hardship  in 
holding  that  a  Stock-broker  is  a  ]>ledgee  ;  for,  although 
it  is  true  that  he  may  advance  all  or  the  greater  part 
of  the  money  embraced  in  the  speculation,  if  he  acts  hon- 
estly, faithfully,  and  prudently,  the  entire  risk  is  upon  the 
Client,  and  may  be  enforced  against  him  as  a  personal 
liability,  irrespective  of  the  value  of  the  securities,  which 
are  the  subject  of  the  transaction.  To  introduce  a  dif- 
ferent rule  Avould  give  opportunities  for  sharp  practices 
and  frauds,  which  the  law  should  not  invite ;  and  if  it  be 
true,  as  Mr.  Justice  "Woodruff-^  puts  it,  that  "  the  transaction 
is  an  executory  agreement  for  a  pure  speculation  in  the  rise 
and  fall  of  stock,  which  the  Broker,  on  condition  of  perfect 
indemnity  against  loss,  agrees  to  carry  through  in  his  own 
name  and  on  his  own  means,"  accounting  to  the  Client  for 
the  profits,  it  is  very  questionable  whether  all  the  transac- 
tions of  Wall  Street  could  not  be  set  aside  as  mere  wagers.^ 
But,  as  we  have  seen,  the  cases  most  emphatically  condemn 
this  view,  except  those  in  Pennsylvania,  in  one  of  which 
— viz..  North  vs.  Phillips^ — the  Supreme    Court  of  Penn- 

•  Markham    vs.    Jaudon,    supra;  '■'  Markham  vs.  Jaudon,  41  N.  Y. 

dissenting   opinions.     In   re   Swift,  2.56;  ante,  p.  1S9. 

10.5  Fed.  Rep.  498;   112  Fed.  Rep.  ^  See  cases  cited  in  chapter  on 

.318.     See  also  Skiff  vs.  Stoddard,  63  "Stock-jobbing." 

Conn.  217  et  seq;  21  L.  R.  A.  112,  *  89  Pa.  St.  250. 
113. 


Legal  Relation  to  Ciient.  197 

sylvania  held  that  the  peculiar  facts  there  developed  showed 
that  the  dealings  between  the  Client  and  the  Brokers  were 
in  "differences"  and  "  margins,"  and  the  purchase  and  sale 
of  the  stock  were  a  mere  pretence ;  but  it  is  plain,  from 
reading  the  opinion  of  tlie  learned  judge  in  that  case,  that 
not  only  was  no  effect  given  to  the  verdict  of  the  jury, 
which  found  that  the  purchases  of  stocks  had  been  made 
bona  Jide,  but  the  different  elements  which  made  up  the 
transaction  between  the  Brokers  and  their  Client  were 
completely  overlooked — viz.,  that  stock  was  actually  pur- 
chased for  the  Client ;  that  it  was  held  subject  to  his  or- 
ders ;  that  he  would  have  been  entitled  to  the  dividends 
thereoxi ;  that  he  could  have  insisted  upon  the  instantaneous 
delivery  of  the  stock  t(j  him  upon  tendering  the  purchase- 
money  remaining  due  ;  that,  if  the  Brokers  had  failed,  the 
stock  would  not  have  passed  to  their  assignees  ;  and  that,  in 
fine,  the  Brokers  were  only  interested  in  the  transaction  to 
the  extent  of  their  commissions.  With  great  respect, 
therefore,  we  think  that  this  case  is  not  entitled  to  rank 
as  an  authority  upon  the  question  involved,  especially  as  it 
appears  to  be  directly  opposed  to  the  previous  cases  of 
Esser  vs.  Lintlerman '  and  Wynkoop  vs.  Seal,'^  where  sim- 
ilar transactions  were  upheld.^ 

'  71  Pa.  St.  81.  said:  "In  doalin<r  with  stork  trans- 

*  64  Pa.  301.  uc'tioii.s  fallinji  witliiii  or  in  any  way 

'See  thi.s  question  fully  discussed  connected  witii  wafierinji  contract-s, 

in  chapter  on  "Stock-jobljiiif?,"  un-  the  law  of   Penn.sylvania  i.s  of   ex- 

der  head  of  "Wafers."     The  case  ceptional  and  ...  of  illoj^ical  and 

cited   muat   be    con.sidered   as  sub-  untenable  severity   in   its   interfor- 

stantiaily     overruled     in     Peiujsyl-  ence   with    the   business   affairs   of 

vania.     Since  the  text  was  written  parties  sui  juris  and    entirely  coni- 

the  Supreme  Court  of  Pennsylvania  petent  to  manaue  (licir  own  adiiirs," 

in  Hp'-akint:  of  the  cla.HM  of  cases  of  "  .\  purclia.se  of  stock  for  spec  iil.it  lot) 

which  North  vs.  I'liillipH  was  one,  luis  even  when  done  merely  on  margin 


198  Stock-luokors  and  Stock  Exchanges. 

Some  cases  have  also  been  decided  in  New  York  involv- 
ing the  question  of  a  Stock-broker's  character  as  a  trustee. 
In  McBuruey  vs.  ]\Iartin '  the  complaint  set  up  a  refusal  by 
the  defendant  Stock-broker  to  pay  money  claimed  to  have 
been  received  by  him  in  a  Jidiuna?'i/  capacity,  and  the  court 
in  vacating  an  order  for  defendant's  arrest,  held  tluit  the 
179th  section  of  the  Code  did  not  include,  in  the  class  of 
persons  liable  to  be  arrested,  any  one  except  those  who 
received  moneys  purely  in  a  fiduciary  capacity  as  sim- 
ple agents,  to  apply  it  as  directed,  and  therefore  it  excluded 
all  those  who  had  a  personal  interest  in  such  money,  or  its 
use.  In  the  case  under  consideration  the  defendant  had 
sold  stock  "short"  for  plaintiff's  assignor,  who  had  de- 
posited money  with  defendant  as  "  margin,"  and  defendant 
borrowed  stock  to  deliver  to  the  purchaser,  and  wdth  plain- 
tiff's assignor's  assent,  retained  the  purchase  money  to  in- 
demnify him  against  any  appreciation  in  the  borrow^ed 
stock,  for  which  he  was  personally  responsible.  In  viola- 
tion of  his  agreement  with  plaintiff's  assignor  to  keej?  the 
stock  borrowed,  and  not  to  buy  in  and  close  the  transaction 
until  so  instructed,  defendant  bought  in  stock  and  delivered 
same  to  the  lender,  whereas  if  he  had  waited  nine  days  sub- 
sequently, he  could  have  purchased  the  stock,  which  had  de- 
is  not  necessarily  a  pamblina;  trans-  him,  with  or  without  margin,  the 
action.  If  one  buys  stock  from  A  transaction  is  not  necessarily  difTer- 
and  borrows  the  money  from  B  to  ent  in  character."  Peters  vs.  Grim, 
pay  for  it,  there  is  no  element  of  149  Pa.  St.  1C3;  Hopkins  vs. 
pamblins;  in  the  operation,  though  O'Kane,  169  Pa.  St.  478;  Wagner  vs. 
he  pledge  the  stock  with  B  as  secu-  Hildel^rand,  187  Pa.'St.  136;  Estate 
rity  for  the  money.  So,  if  instead  of  of  Taylor,  192  Pa.  St.  304,  309,  313; 
borroT^nTig  the  money  from  B,  a  Smj'th  vs.  Glendinning,  194  Pa.  St. 
third  person,  he  borrows  it  from  A,    .550. 

or  in  the  language  of  Brokers  pro-        '  McBurney   vs.   Martin,    6   Rob. 
cures  A  to   'carrj''   the   stock  for    (X.  Y.)  502. 


Legal  Relation  to  Client.  199 

clined,  at  a  much  lower  figure.  The  court  held,  as  already- 
stated,  that  the  defendant  had  an  interest  in  the  moneys 
retained  by  him,  as  he  was  personally  liable  to  the  lender 
of  the  stock,  and  therefore  the  moneys  were  not  held  by 
liini  as  a  trustee.  But  if  the  stocks  to  be  sold  belong  to 
the  plaintiff,  and  are  actually  delivered  to  the  Broker, 
the  latter  is  a  trustee  of  the  purchase  price.  So  held  in 
Waters  vs.  ^larrin,^  which  distinguishes  the  last  cited  case. 
In  a  state  of  facts  similar  to  those  in  McBurney  vs.  Martin, 
supj^a,  the  Supreme  Court,  however,  subsequently  held  that 
a  case  of  agency  was  disclosed  showing  that  money  received 
by  defendant  Stock-broker  as  "  margin  "  was  held  by  him 
as  a  trustee,  and  an  order  for  his  arrest  was  granted.^  But 
the  doctrine  enunciated  in  McBurney  vs.  Martin,  supj^a^ 
seems  to  be  more  reasonable,  and  it  was  followed  in  Mann 
vs.  Sands,'  where  it  was  held  that  if  moneys  are  deposited 
as  margins  and  settlements  are  had  by  balances  struck,  the 
relation  thus  formed  becomes  that  of  debtor  and  creditor, 
and  a  failure  by  either  party  to  pay  the  balance  due  does 
not  furnish  the  other  with  a  ground  of  arrest.  This,  like 
every  other  loan  or  deposit,  ma}"-,  to  a  limited  extent,  imply 
a  trust  and  confidence,  but  it  does  not  necessarily  create 
that  fiduciary  relation  which  subjects  the  party  who  makes 
default  in  paying  such  balance  to  arrest.  As  stated  in  the 
last  cited  case,  the  general  rule  is  that  if  a  Broker  is  given 
money  to  buy  a  particular  stock,  he  becomes  a  trustee  as  to 
iKjth  stock  and  money.  If  he  sells  a  particular  stock  bo- 
longing  to  a  client,  he  becomes  a  fiduciary  as  to  such  stock 

'  Waterfl    vh.    Marrin,     12    Daly,        '  Mann  vs.  Sands,  2  City  Ct.  Rep. 
145.  2.0. 

'  Clark    VH.    Pinckney,    .00    Harb. 
226. 


200  Stot'k-brokers  and  Stock  Ext'haiiy;es. 

and  its  proceeds.  For  a  breach  of  duty  in  cither  case  lie  is 
liable  to  arrest,  But  as  to  money  dcj)osited  on  "  margin  " 
to  cover  the  fluctuations  of  the  mai'kct,  and  where  settle- 
ments ai'e  had  l)y  the  balances  struck,  he  is  merely  a 
debtor  to  his  client,  and  a  failure  to  pay  a  balance  due  by 
him  does  not  authorize  his  arrest. 

It  was  held  in  Jloirmann  vs.  Livingston'  that  the  agree- 
ment made  by  the  parties  disclosed  Vi  fiduciary  relation. 
In  that  case  the  Broker  asked  his  Client,  a  woman  not  ac- 
customed to  dealing  in  stocks,  whether  she  wanted  to  trust 
him  as  to  the  amount  of  stocks  to  be  bought  and  sold  for 
her,  and  she  replied  that  she  left  it  to  his  own  judg- 
ment, and  the  court  held  that  the  relation  established 
largely  imposed  confidence  and  good  faith  in  the  discharge 
of  the  duties  assumed  by  the  Stock-bi-oker. 

HI.  Deiiiiitious  of  Terms  Used. 

There  are  a  number  of  technical  or  well-known  terms  used 
in  Wall  Street  which  should  be  defined  preliminarily  to  a 
discussion  of  this  chapter. 

"When  a  person  is  said  to  be  "  long  "  of  stocks,  it  is  meant 
that  he  has  purchased  stocks  through  his  Brokers  or  other- 
wise, in  the  expectation  of  a  rise  or  advance  in  the  market ; 
he  is  then  called  a  "  bull." 

To  be  "  short "  of  stocks  is  where  one  sells  stocks  which 

'  Hoffman  vs.  Li^^ngston,   14  J.  and  in  Avhich  the  relation  merely  of 

&  S.  (X.  Y.)  552.     See  also  the  re-  debtor  and  creditor  exists  between 

cent  English  cases  of  King  vs.  Hut-  them.     See  also  as  to  what  consti- 

ton,   69  L.  J.   Q.   B.   D.   786;   Re  tutes    a    breach    of     trust,    In    re 

Woodd,  Ex  parte  King,  82  L.  T.  R.  Jamison,  29  Atl.  Rep.  (Pa.)  1001; 

504  (and  cases  cited),  which  distin-  People  vs.  Thomas,  S3  A.  D.  226. 

guish  transactions  in  which  a  Broker  And  see  post  p.  779, 
becomes  a  trustee    for  his  Client, 


Dettnitiou  of  Terms.  201 

he  does  not  own  or  possess,  and  borrows  the  number 
of  shares  which  he  has  sold  from  some  third  person  to 
deUver  to  his  vendee,  expecting  to  be  able  to  buy  the 
stocks  at  a  lower  figure,  and  then  return  them  to  the 
person  from  whom  he  has  borrowed  them  ;  he  is  called  a 
"  bear."  ' 

To  "carry  "  stocks  means  where  a  Broker  or  .other  person 
advances  the  money,  or  a  principal  part  thereof,  with  which 
to  purchase  stocks,  and  holds  the  same  subject  to  the  orders 
of  his  Client.^ 

"  Margin  "  is  the  security  against  loss  on  the  part  of  the 
Broker  while  he  is  carrying  stock  for  his  customer.^ 

"  Net  balance,"  as  applied  to  the  proceeds  of  the  sale  of 
stock,  means,  the  balance  of  the  proceeds  after  deducting 
the  expenses  incident  to  the  sale.'* 

"  Stop  Order,"  an  order  given  to  a  Broker  to  await  a 
certain  figure  in  the  price  of  a  particular  bond  or  stock  be- 
fore he  buys  or  sells  it,  and  then  to  "stop"  the  transac- 
tion by  then  buying  or  selling  as  the  case  may  be,  as  well 
as  possible.^ 

'  White  vs.  Smith,  54  N.  Y.  522;  Law.     See    Ch.     on     "  Stock-job- 

Knowlton  vs.  Fitch,  52  X.  Y.  289;  bins;." 

Cameron   vs.  Durkheim,  55   N.    Y.  '  Price   vs.   Cover,   40   Md.    102; 

425;  Hes.s  vs.  Kau,  95  N.  Y.  359;  Saltus  vs.  Genin,  3  Bosw.  (N.  Y.) 

Sistare  vs.  Best,  88  X.  Y.  533.     The  2.'j0,  2G0. 

sale  of  stocks  "short"  was  legalized  '  MoXeil     vs.     Tenth     National 

by  statute  in  Xew  York  State,  L.  Bank,  55  Barb.  59,  04;  Markham 

185.S,  ch.  134,  repealed  by  and  re-  vs.  Jaudon,  41   N.  Y.  235;  Hatch 

enacted  in    the  Personal   Property  vs.    DourIjis,   48   Conn.    110,    128; 

Law,  S  22.     It  is  illefral  by  statvite  McClain    vs.    P'leshman,    100    Fed. 

in  Mas.sachu.scttH  and   Illinoirt,  and  Kcp.  880,  882. 

was  illegal   in   Xew  York    (\    Rev.  *  Evans  vs.  Wain,  71   Pa.  St.  09, 

Stat.  710,  5  0)  prior  to  the  pa«.saKe  74. 

of  L.  1858,  ch.  1.34.     See  liirdseye's  »  PoHer    vs.  Worin.ser,  94    NY. 

Stats.,    vol.    2,    p.    2035,    and   cuhch  413;  Wronkow  vs.  Clews,  52  N    V. 

noted    under   sec.    22,    Per.    Prop.  Super.  Ct.  170.     As  used  in  a  httcr 


202  Stock-brokei-s  and  Stock  Exchanges. 

"  Dividend  on,"  means  that  a  dividend  goes  to  the  buyer 
of  stock. 

"  Ex-dividend,"  means  that  the  seller  retains  a  dividend. 

In  connection  with  these  terms,  Art.  XXXII.,  §  1  of  tlie 
constitution  of  tlie  New  York  Stock  E.xchango  may  be 
quoted.  "  On  the  day  of  closing  of  the  transfer  books  of  a 
cor[X>ration  for  a  dividend  upon  its  shares,  all  transactions 
therein  for  'cash 'shall  be  'dividend  on"  up  to  the  tifne 
officially  designated  for  the  closing  of  transfers;  all  transac- 
tions on  that  day  other  than  for  '  cash '  shall  be  '  ex-divi- 
dend.' Should  the  closing  of  transfers  occur  upon  a  holi- 
day or  half  holiday,  observed  by  the  Exchange,  transactions 
on  the  preceding  business  day,  other  than  for  '  cash,'  shall 
be  '  ex-dividend.' '' ' 

A  "corner"  in  stocks  is  where  the  owners  or  holders 
(i.  e.  bulls)  refuse  to  loan  stocks  to  the  "  bears,"  with  which  to 
carry  out  their  short  contracts,  in  which  event  the  "  bears,'^ 
being  unable  to  deliver,  are  compelled  to  go  into  the  mar- 
ket or  Exchange  and  buy  the  stocks  at  any  price  at  Avhich 
they  can  obtain  them.^ 

A  "pool"  means  that  individuals  have  combined  together 

by  a  Broker  to  his  principal  then  coupons  and  accrued  mterest; 
abroad,  in  which  the  Broker  called  $500,000  do.  at  lOOJ  do.,  do.," 
for  more  margin,  it  means  that  the  means  that  the  Brokers  were  re- 
Broker  would  "stop"  entirely  in  quired  to  sell  when  the  market 
everything,  i.  e.,  keep  the  transac-  price  should  decline  to  lOOi  or  lOOi 
tion  in  statu  quo,  till  he  heard  from  without  the  July  coupons,  or  if  sold 
his  principal.     Id.  after   July    1st    when    the  .  market 

'See    Chap.      IV.,    "Usages    of  price  should  equal  lOOJ  and  100J-, 

Stockbrokers."  plus  the  accrued  interest  from  that 

The  following  request  by  a  cus-  date.     Porter  vs.  VVormser,  94  X.  Y. 

tomer  to  his  Brokers  directing  a  sale  431,  443. 

of   government   bonds    carried   by  '  Cameron  vs.  Durkheim,  .55  N.  Y. 

them  for  him  "or  at  your  discretion  425,     438.     See    also    chapter    on 

'stop  order'  $.500,000  United  States  "Stock-jobbing." 
four  per  cent,  bond  at  100^  ex.  July 


Definition  of  Terms. 


203 


in  buying  and  selling  stocks,  and  dividing  the  profits  or  loss 
in  agreed  proportions.^ 

"  "Wash  sales  "  are  not  real  sales,  but  are  made  by  persons 
interested  in  each  other,  for  the  purpose  of  giving  a  ficti- 
tious value  to  the  stock.' 

A  "  shave  "  is  a  consideration  for  carrying  stock  for  a  cer- 
tain time.^ 

A  "  call "  is  a  contract  by  which  the  party  signing  or 
making  the  same  agrees,  in  consideration  of  a  certain  sum, 
to  deliver,  at  the  option  of  a  party  therein  named,  or  his 
order  or  bearer,  securities  therein  mentioned,  at  a  certain 
day  for  a  certain  price.^ 

A  "•  put "  is  also  an  option  contract,  except  the  party 
holding  the  same  has  the  option  of  delivering  securities  to  the 
maker.'' 


'  Kilboum  vs.  Thompson,  103  U. 
S.  195;  Myers  vs.  Paine,  13  App. 
Div.  332;  afT'd  57  X.  E.  Rep.  1118; 
Leonard  vs.  Poole,  114  N.  Y.  371. 
One  action  ajrainst  two  "pool" 
partnerships  cainiot  be  maintained 
when  the  members  of  each  are  not 
the  same.  Earle  vs.  Scott,  50  How. 
Pr.  506. 

»Brj'an  vs.  Baldwin,  52  N.  Y. 
232,  236;  aff'g  7  Lans.  (N.  Y.)  174; 
Secor  vs.  Goslin,  X.  Y.  L.  J.  March 
26,  1901,  p.  2310.  Rosenberg,'  vs. 
Meyer,  X.  Y.  L.  J.  June  10,  1902, 
p.  922.  The  price  at  a  wash  sale 
is  not  evidence  of  the  real  market 
value  of  the  stock  with  a  view 
to  aascusinp  damaRcs.  Bryan  vs. 
Baldwin,  supra. 

»Xorth  vs.  Phillips,  S9  Pa.  SL 
2.50-255. 

*  Tlie  foIlowinK  is  a  copy  of  the 
call  commonly  ujicd: 


"New  York,        ,1881. 

"For  value  received,  the  bearer 
may  call  on  me  for  shares  of  the 
common  stock  of  the  Railroad 

Company  at  per  cent.,  any  time 
in  days  from  date.  The  bearer 
is  entitled  to  all  dividends  or 
extra  dividends  declared  during 
the  time. 

"E.xpires        1881,  at  IJ  P.  M. 
"Signed,  ." 

By  the  usage  of  Brokers,  it  is 
negotiable,  and  it  has  been  declared 
valiti  l)y  certain  courts.  See  title 
"Stock-jobbing,"  under  head  of 
"Wagers." 

'  Hopper  vs.  Sage,  112  X.  Y.  530; 
Bigelow  vs.  Beneilict.  70  X.  Y.  202; 
Ex  parte  Yo\ing,  6  Biss.  53;  Gilliert 
vs.  Gaugar,  S  id.  21 S;  Pixley  vs. 
Boynton,  79  111.  353;  IVurco  vs. 
Koote,  113  111.  231;  .Vnderson's  Law 


204  {Stock-broktMs  and  Stotk  Exchanges. 

A  "  straddle,"  or  "  spread-eagle,"  combines  the  advantages 
of  a  "  put  "  and  a  "  call,"  being  a  contract  by  which  the 
holder  has  the  right  or  option  either  to  deliver  or  have  de- 
livered to  him  certain  stocks  at  prices  designated  in  the 
writing.' 

A  purchase  or  sale  of  stock  "  for  the  account"  means  a 
purchase  or  sale  of  stock  to  be  received  or  delivered  at  a 
futui'c  time.  Transactions  "  for  the  account,"  have  been 
practised  on  the  London  and  Xew  York  and  other  Stock 
Exchanges  for  many  years.^ 


Diet,    title  "Put."     It    is    as    fol-  Ct.  67;  Story  vs.  Salomon,  71  N.  Y. 

lows:  420. 

"New  York,          1881.  The  following  is  the  form  of  a 

"For  value  received,  the  bearer  "straddle:" 
rasLy  deliver  me          shares  of  the 

common  stock  of  the          Railroad  "New  York,          1881. 

Company  at            per  cent.,  at  any  "For  value  received,  the  bearer 

time  ill            day.s  from  date.     The  may  call  on  the  undersigned  for 

undersigned  is  entitled  to  all  divi-  shares  of  tlie  common  stock  of  the 

dends  or  extra  dividends  declared  Railroad  Company  at          per 

during  the  time.  cent.,  any  time  in       daj-s  from  date. 

"  Expires               at  1  ^  P.  M.  Or  the  bearer  may,  at  his  option,  de- 

"Sjgned,                            ."  liver  the  same  to  the  undersigned  at 

per  cent.,  any  time  within  the 

*  Harris  vs.  Tumbridge,  8  Ab.  period  named.  All  dividends  or  ex- 
New  Cas.  291;  aff'd  83  N.  Y.  92,  tra  dividends  declared  during  the 
where  the  court,  in  speaking  of  a  time  are  to  go  with  the  stock  in 
"straddle,"  said:  " The  word,  if  not  either  case;  and  this  instrument 
elegant,  is  at  least  expressive.  It  is  to  be  surrendered  upon  the 
means  the  double  privilege  of  a  stock  being  either  called  or  de~ 
'  put '  and  a  '  call , '  and  secures  to  the  li vcred . 

holder  the  right  to  demand  of  the  "Expires               at  IJ  P-  ^^■ 

seller  at  a  certain  price,  within  a  cer-  "Signed,                             ." 
tain    time,    a    certain    number    of 

.shares  of  specified  stock,  or  to  re-  ^  Clews  vs.  Jamieson,  182  U.  S. 

quire  him  to  take  at  the  same  price,  461,  487.     In  that  case  transactions 

within    the   same   time,    the   same  of  this  kind  as  practised  on  the  Chi- 

shares    of    stock."     See    also    Van  cago  Stock  Exchange  arc  explained 

Norden  vs.  Keene,  5.5  X.  Y.  Super,  in  full  detail.     See  also  Chap.  X. 


Purchase  on  "LoiiJ?"  Account.  205 

IV.  Purchase  on  ''Long"  Account. 

We  have  ah'ead y  seen  what  the  relation  is  where  a  Stock- 
broker contracts  to  buy  stocks  for  a  Client  on  a  margin^ 
for  speculation,  and  advances  all  or  the  greater  portion  of 
the  purchase-money,  and  that,  after  such  purchase,  the  Bro- 
ker immediately  acquires  a  lien  upon  the  stocks,  for  the 
balance  of  the  purchase-money  in  excess  of  the  margins  re- 
ceived, which  he  has  advanced  to  pay  for  the  stocks,  and 
becoines,  in  relation  thereto,  a  ])ledgee,  with  the  full  powers 
and  responsibilities  of  that  position. - 

It  is  proposed  to  examine,  under  this  subdivision,  with 
some  detail,  the  duties  of  the  Broker  in  respect  to  the  pur- 


p.  987,  et  seq.  as  to  such  trading  on  beinp;  enforced  against  the  defend- 

ihe   London   Stock   Exchange  ants,  although,  but  for  such  settle- 

An     interesting      question     was  meut,  there  might  have  been  some 

raised  in  Clews  vs.  Jamieson,  supra,  embarrassment    in    maintaining    a 

as  to   the   privity   of   contract  be-  suit  against  the  latter  for  a  portion 

iween     undisclosed     principals     in  only  of  the  total  shares  sold  them, 

sales  "for  the   account."     In  that  while  the  other  portion  was  repre- 

case  Brokers  on  the  Chicago  Stock  sented  by  different  clients  of  com- 

Exchange  had  sold,  on  the  3d  of  Au-  plainants'  Brokers. 

gu.st,  1150  .shares  of  stock  belonging  In  England,  however,  a  Broker 

to  different  owners  for  delivery  on  may  make  one  contract  with  a  job- 

the  31.st  of  August.    Included  in  the  ber  as  to  shares  in  the  same  undcr- 

shares   sold    were   a   large   number  taking  owned  by  several  clients,  and 

(70O)  belonging  to  plaintiffs.     Set-  a  usage  to  that  effect  is  valid.    Scott 

tloments    were    had    a.s   to   all    the  vs.  Godfrey,  2  L.  R.  K.  B.  (1901) 

shares   except    those    l)elonging    to  726.     For  other   Englisli   cases  on 

plaintiffs.     It    wa.s    held    that    the  thi.s  subject,  see  Chap.  X. 

fact  that  there  were,  in  the  sale  of  '  See  cases  cited  in  this  chapter, 

.\ugust   3,    other   shares    than    the  §  II. 

7(K),  and   that,   in   regard   to  tho.se  '  Id.;    Brookman  vs.  Rothschild, 

others,    some   had   been   sold   origi-  3  Sim.  153,  aff'd  in  House  of  Lords, 

nally  by  complainant's   Brokers  to  5  Bli.  (n.  s.)  105;  (Jniman  vs.  Smilli, 

other  and  diff<Teiit  Brokers  than  de-  12  J.  &  Sp.  (N.  Y.)  389;  aff'd  SI  N. 

fendant's,    would    not    prevent   the  Y.  25. 
contract  a«  to  the  7(KJ  shares  frcjm 


206  Stock-brokers  aud  Stock  Exchanges. 

chased  stock,  from  the  inception  to  the  termination  of  the 
business.^ 

(rt.)   The  Order  to  Purchase^  Price,  and  Number  of  Shares  to  be 

Bought. 

If  the  order  to  purchase  is  ambiguous  or  fairly  susceptible 
of  two  constructions  and  the  Broker  honestly  and  fairly  acts 
on  that  not  intended  by  the  Client,  the  latter  must  bear  any 
loss.^ 

If  the  technical  terms  of  the  stock  market  are  used  in  the 
order  of  the  Client,  he  cannot  afterwards  claim  that  be  in- 
tended them  to  have  other  than  their  customary  meaning.' 

A  Broker  is  not  obliged  to  accept  a  proposition  that  he 
act  as  such,  nor  is  he  necessarily  bound  to  communicate  his 
declination  to  the  proposer,^  but  the  rule  of  law  is  that  hav- 
ing entered  into  the  relation,  he  is,  when  directed  to  buy  or 
sell,  bound  to  follow  the  directions  of  his  principal,  or  give 
prompt  notice  that  he  declines  to  do  so.^ 

If  the  order  is  to  purchase  he  must  actually  execute  it.* 
If  the  Broker  fails  to  execute  the  order  in  the  expectation 
of  making  a  profit  for  himself  through  the  fluctuation  of  the 

'  See    also    Mr.    Eliot    Norton's  '  Hatch    vs.    Douglas,    48   Conn, 

essay  on  "A  simple  purchase  and  116. 

sale  through  a  Broker"  (8  Harvard  *  Mechem  on  Agency,  §  108. 
L.  Rev.  p.  435),  afterward  amplified  *  Galigher  vs.  Jones,  129  U.  S. 
and  publuslied  under  the  title  "On  193.  The  declination  to  execute 
Buying  and  Selling  Securities  the  order  should  be  b}'  means  as 
through  a  member  of  a  Stock  E.x-  speedy  as  the  circumstances  re- 
change,"  N.  Y.  1896.  quire.     Ibid. 

'  Ireland  vs.  Livingston,  L.  R.  5  «  Skiff  vs.  Stoddard,  63  Conn.  198; 

H.  L.   395;    41    L.  J.  Q.  B.    201;  21  L.  R.  A.  110,  overruling  Ingra- 

Coquard  vs.   Weinstein,   16  Mont,  ham    vs.    Taylor,    58    Conn.    503 

312,    and    cases    cited.     See    also  Prout  vs.  Chisolm,  21  App.  Div.  54 

Tallentine  vs.  AjTe,  1  T.  L.  R.  143;  Zimmerman  vs.  Heil,  S6  Hun,  114 

Loring  vs.  Davis,  32  Ch.  D.  625.  aff'd  156  N.  Y.  703;  Allen  vs.  Mc- 


Order  to  Purchase — Price.  207 

market,  he  is  guilty  of  fraiul  in  morals  as  well  as  law.' 
Making  a  contract  with  a  tliird  party  whereby  he  can  get 
the  stock  by  paying  for  it,  but  which  he  does  not  obtain,  is 
not  enough.^ 

If  the  order  is  to  buy  at  a  fixed  price  he  must  buy  at  the 
best  price  obtainable  not  exceeding  that  price.  He  is  not 
entitled  to  buy  at  a  lower  }M-ice  and  ro-sell  to  the  Client  at 
the  price  named,  although  he  does  not  charge  commission.^ 
If  the  Broker  disobeys  his  Client's  orders,  and  the  result  is  a 
loss  which  the  Broker  promises  to  pay,  the  fact  that  the 
Broker,  with  the  consent  of  the  Client,  continues  to  specu- 
late, and  the  Client's  entire  deposit  is  thereby  lost,  does  not 
relieve  the  Broker  from  liability  as  to  the  first  loss  which  he 
promised  to  repay .^ 

Agents  constituted  for  a  ])articular  purpose,  and  under  a 
Umited  and  circumscribed  power,  cannot  bind  their  prin- 
cipal beyond  their  authority.'^  Accordingly  an  order  to 
buy  stocks  "  regular  "  is  not  fulfilled  by  a  purchase  by  the 


Conihe,  124  X.  Y.  342.     Proof  that  customer  may  either  sue  for  a  non- 

the  Broker  employed  other  Brokers  delivery  of  the  stock,  or  for  a  retvirn 

to  make  the  purchase  and  that  the  of  his  deposit  with  interest.     Larra- 

latter  reported   that   the  purchase  bee  vs.  Badger,  45  111.  440. 

had  been  made,    ts  not  sufficient.  '  Genin  vs.  Isaacson,  6  X.  Y.  Leg. 

Sweeney  vs.  Rogers,  10  Daly,  409.  Obs.  213;  Bash  vs.  Cole,  2.S  X.  Y. 

'  Prout  vs.  Chi.solm,  supra.  261,  and  cases  cited;  Uchifield  vs. 

'  Smith  vs.  Xew  York  Stock  and  State  of  111., 20  Wend.  221 ;  Clali^'her 

Produce  Exchange,  25  X.  Y.  Supp.  vs.  Jones,  129  U.  S.  193;  Story  on 

261.  An.  9th  ed.  §  120;  Wharton  on  .A^. 

'  Thompson  vs.  Meade,  7  T.  L.  11.  §  712;  Maxted  vs.   Paine,   L.   11.  4 

698.  Ex.  81 ;  Maxted  vs.  Morris,  21  L.  T. 

*  HolIinKshead    vs.  Green,  1  Cin.  (n.  h.)  .535.     Xor  is  this  rule  affected 

Super.  Ct.  R.  305.     If  a  Broker  is  by  the  fact  that  (lie  contract  made 

intnmt«'d  with  money  to  buy  stocks  is  more  atlvantacoous  for  the  princi- 

for  phiintifT,  he  does  not  execute  liis  pal.      Xesliitt  vs.  Ilclscr,  19  Mo.  ;iS3; 

duty   wn   u^cnt   by    purch«.'*iiii;   flu*  Smith  vs.  Bonvicr,  70  I'a.  St.  325; 

BtfH'kH   in   his  own   name,   and   the  Borham  vs.  Godfrey,  1  Knapp,  .'iMI. 


208  Stock-brokers  and  Stock  Kxcliauffes. 

Broker  at  "  seller's  option,  thirty  days."  '  An  order  to  pur- 
chase at  57}  is  not  fultillod  by  a  purchase  at  57|  or  58.^^ 

So  an  order  to  a  Broker  to  bu}'  5(.)(>  shares  of  stock,  bu3^er's 
option  in  (50  days,  at  $2  per  share,  is  not  fulfilled  by  the 
Broker's  Ijuying  the  same  at  $1.62^  j)er  share,  at  30  days, 
buyer's  option,  and  then  charging  $1.75,  60  days  ;  and  the 
Client  is  not  liable,  therefore,  even  though  he  give  a  note, 
without  knowledge  of  the  facts.^  If  the  Broker  is  merely 
directed  to  buy,  without  any  price  being  designated,  he  can 
make  the  purchase  at  the  market  price/ 

In  respect  to  the  amount  or  number  of  shares  which  the 
Broker  may  buy,  he  is,  of  course,  restricted  to  the  order. 
But  if  he  cannot  purchase  the  whole  amount  stated,  he  may 
purchase  a  less  number  of  shares ;  and  where  a  Broker  re- 
ceives an  order  to  purchase  securities,  his  undertaking  is  not 
to  deliver  the  whole  absolutely,  but  to  buy  as  many  of  them 
as  could  be  bought  in  the  regular  way,  below  or  at  the 
limit,^  unless  there  is  something  in  the  circumstances  to 
show  the  intention  of  the  Client  to  do  otherwise.  If  an  un- 
foreseen emergency  arise,  such  as  for  instance  an  extraordi- 
nary advance  in  the  price  of  the  securities  ordered  to  be  pur- 
chased before  the  completion  of  a  direction  to  invest  a  cer- 
tain  sum  therein,  the  Broker  is  justified  if  acting  in  good 

*  Taussig  vs.  Hart,  58  N.  Y.  425-  busiii'ess  affect  the  orders  of  the 
428.  Broker,  see  chapter  on  "U.sages." 

'  Genin  vs.  Isaacson,  supra.  It  has  been  held,  however,  that  no 

^  Day  vs.  Ilohnes,  103  Mass.  306;  usage    will    authorize    a   factor   or 

Pickering  vs.  Demeritt,  100  Mass.  agent  to  depart  from  positive  in- 

416.     An  order  to  buy  "five  De-  structions  (Barksdale  vs.  Brown,  1 

cember  barley"  is  not  fulfilled  by  X.  &  McC.  [S.  C]  517). 

buying  "five  January  barley,"  al-       *  Marye  vs.  Strousc,  5  Fed.  Rep. 

though  the  latter  purchase  might  483;  Leddy  vs.  Flanagan,  3  Phila. 

have  been  as  advantageous.     Mc-  355;    Marland    vs.   Stanwood,   101 

Dermid  vs.  Cotton,  2  111.  .Vpp.  297.  Mass.  470. 

♦  As  to  how  far  the  usages  of  the 


Order  to  Purchase — Price.  209 

faith  in  writing  and  waiting  for  further  instructions  of  the 
Client.^  An  order  to  i)urchase  stock  to  a  certain  amount 
must  be  carried  out  and  an  error  in  regard  to  the  par  vahie 
must  be  borne  by  the  Broker.^ 

An  ordinar}'  Broker's  contract  for  the  buying  of  stock, 
every  share  of  which  has  a  distinct  and  independent  value, 
cannot  be  regarded  as  an  entire  contract,^ 

Accordingly,  it  was  held  ^  that  where  a  Client  ordered 
Mining  Brokei-s  to  buy  500  shares  of  the  Franklin  Mining 
stock  at  the  San  Francisco  Stock  Board,  and  the  Brokers 
purchased  125  shares  at  the  latter  place,  and  delivered  375 
shares  to  their  firm  of  the  said  stock  belonging  to  one  of  the 
members  of  the  firm,  which  was  placed  in  the  Client's  account 
as  a  fulfilment  of  his  order,  without  his  knowledge,  the 
Client  was  to  be  held  for  the  125  shares  regulai-ly  purchased, 
the  other  shares  being  stricken  from  the  account  upon  the 
familiar  ground  that  an  agent  employed  to  buy  cannot 
become  the  seller.^ 

So,  in  regard  to  the  place  where  the  securities  are  to  be 
purchased,  the  Broker  is  justified  in  acting  according  to  the 
course  of  trade  and  the  retmlar  usatjes  of  business. 

Therefore,  where  a  Client  residing  in  Baltimore  directs  his 
Broker,  residing  in  the  same  })lac<',  to  pui'chase  stock — the  or- 
der being  in  general  terms,  and  not  directing  the  purchase  to 
be  made  at  any  particidar  place  or  modr,  and  not  containing 
any  restrictions  as  to  price — the  Broker,  in  the  full  exercise  of 
his  discretion,  and  acting  iri  good  faith,  may  make  the  pur- 

'  Bfirnard   vh.  Maury,    20   Gnitt.        «  Id. 
4.'M;  Story  oil  Aneiify,  5  103.  'Nor   in   tlu-rc   iiiiy   ul)»nliito   en- 

'  I.iiidnn  vh.  SilvernUJii,  (■>    IV   1'  (rancinciit  on  the  |)iirt  of  Broker  to 

June  '22,   1S90.  nirry   out   tin-   order   at   all   events 

•Marj'c  VH.  StrouHC,  5  Fed    l'.e|>  (Fletcher  vh.  Marnhall,  If.  .M    A  W. 

483.  T.W). 


210  Stock-brokers  and  Stock  Exchanges. 

chase  in  New  York  through  correspondents'  Brokers  or 
sub-agents  residing  and  doing  business  in  that  city.*  The 
transaction  is  governed  by  the  hiwofthe  place  where  it  is 
to  be  performed.^ 

So,  as  to  the  length  of  time  within  which  the  Broker 
should  execute  his  orders,  the  question  depends  upon  the 
circumstances  of  each  case.  The  general  rule  is,  in  the 
absence  of  express  restrictions  or  limitations,  that  the  au- 
thority of  an  agent  continues  until  countermanded^  and 
that  the  principal  may  terminate  the  relation  at  any 
time. 

But  the  previous  dealings  between  the  parties,  the  usages 
of  Brokers,  the  fluctuating  and  uncertain  value  of  the  securi- 
ties dealt  in  on  the  Exchange, -may  all  be  appealed  to  to  vary 
the  general  rules  of  law  in  this  respect  and  establish  a  dif- 
ferent principle. 

In  England  it  has  been  held  that  where  an  order  has 
been  given  to  a  Broker  to  deal  in  a  current  security,  a  jury 
would  be  authorized  to  consider  the  usage  of  the  Stock 
Exchange  to  deal  for  the  coming  settling  day,  and  to  find 
that  when  that  day  arrived  a  reasonable  time  had  elapsed 
for  carrying  out  the  order,  and  that  the  authority  of  the 
Broker  was  at  an  end.* 

Until  the  Broker  has  acted  upon  his  authority  to  buy 


'  Rosenstock  vs.  Tormey,  32  Md.  'In    re    Swift,    112    Fed.    Rep. 

69;  Billinpslea  vs.  Smith,  77  Md.  (Mass.)  315. 

504;  Taylor  vs.   Bailey,  48  N.  E.  ^  Burkitt  vs.  Taylor,  13  W.  D.  75; 

Rep.    (III.)    200.     Evidence    as    to  aff'ji  s.  c.  sub  nom.  Bickett  vs.  Tay- 

entrics  contained  in  the  books  of  the  for,  55  How.  Pr.  128. 

correspondent  Broker  is  not  admis-  *  Maxted  vs.  Paine,  L.  R.  4  Ex. 

Bible  against  the  client  to  show  that  81;  see  also  Maxted  vs.  Morris,  21 

the    stocks    had    been    purchased.  L.  T.  (n.  s.)  535;  Lawford  vs.  Har- 

Boyd  vs.  Yerkes,  25  111.  App.  527.  ris,  12  T.  L.  R.  275. 


Order  to  Purchase — Price.  211 

shares,  it  may  be  revoked ;  ^  and  if  any  money  has  been 
given  him,  in  order  to  enable  him  to  pay  for  them,  it  may 
be  demanded  back.-  But  this  cannot  be  done  after  he  has 
entered  into  a  contract  for  purchase  and  become  personally 
responsible  for  the  due  performance  of  that  contract.^ 

And  if  after  a  Stock-broker  has  received  instructions  to 
sell  certain  shares,  and  before  rescission  of  the  instructions, 
he  receives  notice  from  a  third  party  claiming  the  shares, 
the  Brokers,  having  no  interest,  are  entitled  to  interplead.^ 

In  order  to  charge  a  defendant  in  an  action  for  money 
paid  for  the  purchase  of  stock  on  his  account,  and  by  his 
order,  the  plaintifif  must  clearly  shou'  the  authority  under 
which  he  acted,  and  prove  that  he  was  instructed  b\'  the 
defendant  to  make  the  [)urchase.  And  where  the  proof  is 
so  defective  that  the  jury  will  be  comjielled  to  infer  such 
authority  from  conversations  and  admissions  of  tlie  de- 
fendant, which  are  neither  explicit  nor  satisfactory,  the 
plaintilT  will  be  non-suited.^  "While  ordinarily  it  is  the 
principal's  judgment,  and  not  the  Broker's,  which  is  to  con- 
trol in  the  purchase  and  sale  of  stocks,*  in  some  cases 
Clients,  by  special  agreement,  give  to  the  Brokers  general 
authority  to  buy  and  sell  for  the  Client  at  the  Broker's  own 
discretion  as  to  stock  and  prico.^     If  a  Broker  guarantees 

'  Sibhall  vs.  Bethlehem  Iron  Co.,  by    him    to     make    ct'rtaiii    trans- 

H.'i  X.  V.  .'J7S.  actions,  then  thti  burden  of  proof  to 

'  Fletcher    vs.    Marshall,    supra;  show  the  receipt  by  the  Brokers  of 

Rees  vs.  Fellow,  97  Fed.  Hep.  1()7.  such  orders  is  upon  him.      Proof  of 

'  McFwen  vs.  Woods,  1 1  Q.  B.  13;  mailinfr    the   order,    without   proof 

Sutton  vs.  Tathani,  10  .\d.  Jii  K.  27;  that    such    mailing;   was   timely,  is 

Hea<l  VB.  Anderson,  13  Q.  B.  D.  779.  not   enouKh.     Birnbaum    vs.   May, 

•  Robinson  vs.  Jenkins,  21  Q.  B.  5S  A.  D.  70. 

I).  275.  •Galinher    vs.   Jones,    129    U.   S. 

»  Ward  vs.  Van  Duzer,  2  Hill  (\.  193. 

Y.),1G2.     When  the  client  is  iissert-  '  l'r<«if  that  the  (iisdniicr  lolii  (lie 

ing  that  the  Broker  has  been  ord'-red  Iin)ker  tliat  he  would  like  to  make  a 


212  Stock-brokers  aud  Stock  Exchanges. 

the  return  of  money  deposited  with  iiini  lo  buy  and  sell 
stocks  with  interest,  and  any  profits  he  may  make,  the 
mere  fact  tluit  the  profits  were  carried  to  a  new  account 
and  left  on  the  Ih'okcr's  hands  did  not  show  that  he  also 
guai'aiiteed  the  security  thereof  ;  aud  if  the  Broker,  act- 
ing ill  his  discretion  and  in  good  faith,  subsequently  loses 
these  profits  in  further  speculation,  the  Client  must  bear 
the  loss.'  But  if  the  transactions  are  so  conducted  by  the 
Broker  that  through  his  want  of  that  degree  of  diligence 
and  skill  which  the  Client  might  expect  at  his  hands,  no 
benefit  results,  this,  it  is  said,  constitutes  a  defence,  to  a 
suit  for  commissions.^ 

A  Client  may  ratify  an  unauthorized  purchase  of  his 
Broker,  and  then  the  position  is  the  same  as  if  the  Client 
had  given  an  original  authority.  The  ratification  relates 
back  to  the  time  of  the  act  which  is  ratified.^ 

Before  one  is  called  upon  to  ratify  any  unauthorized 
transaction,  he  is  entitled  to  have  all  the  facts  before  him 
and  to  have  a  reasonable  time  in  which  to  act  in  regard  to 
the  transaction.^ 

The  question  is  one  for  the  jury,  and  the  burden  of  proof 


dollar  if  he  could,  and  that  if  the  exercise  of  such  discretion.     Hop- 
Broker  could  help  him  he  would  like  kins  vs.  Clark,  158  N.  Y.  290. 
to  have  him  do  so,  is  not,  however,  ^Hoffman  vs.  T/ivinpcston,    14  J. 
.sufhcient  authority  for  the  Broker  to  &  S.  552. 

enter   into   "  di.scretionary "   specu-  ^  Campbell  vs.  Brass,  (1891)  7  T. 

lative   transactions   for   the   client.  L.  R.  612;  Clews  vs.  Jamicson,    182 

Hopkinsvs.  Clark,  7  App.  Div.  207;  U.  S.  461.     As  to  when  the  burden 

aff'd  158  X.  Y.  299.  of  proof    to  show  ratification  rests 

•  In  re  Vermilye,  43  N.  J.  Eq.  146;  upon  the  Stock-broker,  .see  Hopkins 

10  A.  605,  and  evidence  as  to  the  vs.  Clark,   7   App.   Div.   461 ;   Mc- 

intrinsic    value    of    the    securities  Geoch  vs.  Hooker,  11  111.  App.  640. 

dealt    in,    is    admissible    upon    the  *  See  cases  cited  in  note  3,  supra; 

question   of   good   faith    and    wise  Harris  vs.  Tumb ridge,  83  N.  Y.  92, 


Order  to  Purchase — Price.  213 

rests  upon  the  Brokers.^  Ratification  may  be  proved  by 
the  acceptance  of  an  account  showing  the  unauthorized 
transaction,  and  a  promise  to  pay  the  baUince  due  upon 
that  account.'  But  mere  retention  of  such  an  account  is 
not  enough  as  matter  of  hiw  to  operate  as  a  ratification.^ 
It  is  the  custom  in  the  Stock  Exchange  when  ordei-s 
have  been  executed,  for  the  Broker  to  give  prompt  notice 
to  his  CHent  of  that  fact,  stating  the  number  of  shares  pur- 
chased or  sold,  the  price  received  or  paid  and  the  name  of 
the  opposite  Broker,^  and  obedience  to  that  custom  in  trans- 
actions   in   the    Exchange    is    the    Broker's    legal    duty.^ 

99.     A  client  is  not  chargeable  with  J.  &  S.  5.52;  Skiff  v.s.  Stoddard,  63 

a  price  which  the  .stock  directed  to  Conn.  204;  21  L.  R.  .\.  102;  Finney 

be  purch;\.sed  may  have  had  prior  to  vs.  Gallaudet,  2  N.  Y.  Supp.  707; 

the  time  that  the  order  was  given,  Tuell     vs.     Paine,     80    N.    Y.     S. 

and  greater  than  it  then  had,  unless  9.56. 

she  consents  to  adopt  such  greater       *  Hoffman  vs.  Livingston,  supra; 

price.     Day  vs.  Jameson,  33  N.  Y.  Rosenstock  vs.Tormey,  32  Md.  17S; 

St.  Rep.  375,  377.  Prout   vs.   Chisolm,    89  Hun,    108; 

*  See  cases  cited  in  note  3,  supra,  s.  c.  21  App.  Div.  54;  Bate  vs.  Mc- 
See  also  Day  vs.  Jameson,  33  X.  Y.  Dowell,  17  J.  <k  S.  106. 

St.   R.   375,    377;    Harris  vs.  Turn-  In  Delenno  vs.  Ilaiglit  it  Free.se 

bridge,  83  N.  Y.  92,  99.     See  also  Co.,  N.  Y.  J..  J.  May  23.  1903,  it  Wiis 

Genin  vs.  Isaacson,  6  X.  Y.  Leg.  Ob.  held  that  it  was  the  duty  of  defend- 

213;  and  cases  cited  in  notes  4  and  ant  Broker  to  give  to  its  principal, 

2,  supra.  the  plaintiff,  the  names  of  the  Brok- 

'  Gillett   vs.    Whiting,   55   X'.   Y.  ers  from  whom  it  bought  and  sold 

Super.  Ct.    187,    reversed   on   other  stock  for  plaintifl'  and  the  prices  at 

grounds,  120  X.  Y.  402.  which  such  .stock  wa-s  I )ought  or  sold 

*  Burhoni  vs.  Lockwood,  71  .\pp.  and  it  will  l)e  compelled  to  deposit 
Div.  301,  alT'd  177  X.  Y.  17,  32;  its  books  and  papers  in  coiirt,  or 
Hansen  vs.  Boyd,  161  U.  S.  397.  have  them  examined  l)y  a  referee 
A«  to  how  far  the  letters  between  ut  its  expen.se,  for  the  purpose  of 
the  parties  and  diary  entries  are  eliciting  such  information, 
admiiwiblc  in  evidence  and  the  Bought  and  sold  notes  sent  by  a 
weight  that  should  be  attachwl  to  Broker  to  th(;  buyer  and  .seller,  the 
them,  itce  Wliitaker  vh.  White,  69  execution  of  which  is  not  denied, 
Hun,  258;  Hofikins  vs.  Clark,  7  constitute  the  contract  bet wi-en  the 
App    Div,  207.  |)arties      .Murray  vs.   Doud,  (V.i  III. 

*iUni  lluffinari  vs.  Livingston,  14    App.  247.     But  a  "sold"  note  giv- 


214  Ntock-brokers  and  Stock  Exchanges. 

His  refusal  to  furnish  information  as  to  tlie  time  or  times 
of  sale,  and  the  amount  realized  by  the  sale  or  sales,  raises  a 
prt'Suui})tion  authorizing  the  strictest  construction  against 
him  as  to  aiiiouiit,  value  and  price.'  And  it  was  decided  in 
Hoffman  vs.  Livingston,'^  that  a  failure  of  the  Broker  to  give 
this  notice  was  such  negligence  as  to  preclude  him  from 
recovering  his  commissions.  Where  such  notices  are  ren- 
dered by  the  Broker  to  the  Client,  who  relies  thereon,  the 
Broker  is  afterwards  estopped  from  denying  the  truth 
thereof.^  It  is  for  the  jury  to  decide  whether  a  Broker 
should  keep  accounts  showing  the  names  of  persons  with 
whom  he  deals  for  his  principal.^  Where  the  transaction 
reported  was  in  fact  never  made,  the  Brokers  are  guilty  of 
fraud. ^ 

Speculations  in  stocks  are  frequently  made  by  agents  of 
the  Client  with  the  Broker,  and  the  authority  of  the  agent 
is  denied.*  So  cases  may  arise  where  a  s})eculative  transac- 
tion is  made  between  a  Client  and  a  clerk  or  agent  of  the 
Stock-broker,  and  tlie  authority  of  the  clerk  is  disputed  or 
his  acts  disowned  by  the   Stock-broker.'     Sometimes,  too, 

ing  the  name  of  the  opposite  princi-  *  See  Finney  vs.  Gallaudet,  2  N. 

pal,   on   the   assumption   that   the  Y.  S.  707.     As  to  when  one  partner 

Litter's  Brokers  had  authority  from  becomes  the  agent  of  another  in  the 

him,  does  not  constitute  a  contract  purchase   of   stocks,    see   Rand  vs. 

between  principal  and  Broker,  so  as  Whipple,    71    A.    D.   62.     See   also 

to  render  the  latter  lialile  for  negli-  Martin  vs.  Peters,  4  Rob.  (N.  Y.) 

gence,  when  the  opposite  principal  434. 

repudiates  the   contract.     Pim  vs.  '  The    ordinary     presumption    is 

Wait,  32  Fed.  Rep.  744.     See  Sim-  that  the  party  in  whose  name  an 

mons  vs.  More,  100  N.  Y.  140.  account  stands  is  the  party  in  in- 

'  Bate  vs.  McDowell,  supra.  terest  from  whom  instructions  are 

M6  X.  Y.  Super.  Ct.  552.  to  be  taken.     Timp.son   vs.   Allen, 

»  Matter  of  Pierson,  19  App.  Div.  149  X.  Y.  513,  519.     ^\^^ere  a  tran.s- 

478.  action  is  made  prior  to  t»he  partner- 

*  Prout  vs.  Chisolm,  21  A.  D.  54  ship  by  an  individual  member  of  a 

'  Id.  firm  of  Brokers  for  his  own  client, 


Order  to  Purchase— Price.  215 

dealings  are  had  between  Broker  and  Client,  thi'ough  an 
intermediary,  and  each  side  asserts  that  such  intermediary 
is  the  agent  of  the  other.' 

In  one  case  in  Xevada  it  appeared  that  R.  &  P.  were 
Stock-brokers,  and  R.  was  also  agent  and  P.  cashier  of 
the  express  and  banking  business  of  W.  F,  &  Co.  One 
W.  called  at  the  banking  department  and  asked  R.  how 
much  interest  ^Y.  F.  &  Co.  would  charge  to  buy  for 
him  certain  shares  of  stock.  The  interest  was  agreed 
on,  and  R.  and  P.  ordered  the  stock  through  their  Bro- 
kers in  San  Francisco,  and  sent  W.  notice  of  the  pur- 
chase in  their  own  firm  name  of  R.  &  P.  The  next  day  W., 
at  R.'s  request,  executed  his  note  to  W.  F.  &  Co.  for  the 
amount  of  money  it  took  to  purchase  the  stock.  The  stock 
•was  never  delivered  to  AV.,  but  the  latter  was  credited  upon 
the  books  of  R.  &  P.  with  the  stock  and  the  amount  of 
purchase-money  stated  in  the  note.  R.  tfe  P.  received  credit 
with  AV.  F.  &  Co.  for  the  same  amount  as  so  much  money 
deposited.  R.  &  P'.  subsequently  failed.  AV.  F.  &  Co. 
brought  suit  against  W.  on  the  note,  and  the  question  was 
whether  the  transaction  was  only  a  loan,  as  claimed  by  "W. 
F.  &  Co.,  or  a  contract  to  procure  the  stock  as  claimed  by 
AV.  Th«;  jury  having  found  a  verdict  for  AV.on  the  ground 
that  li.  ik:  P.  acted  as  agents  of  AV.  F.  &  Co.,  the  court  upon 


and  the  firm  renders  an  account  of  Wells  vs.  Welter,  15  Xev.  270.     .\s 

such  transaction  in  its  own  name  to    when    a    Broker    is    liable    for 

charRinj;  thenuselves  with  tlie  whole  the  acts  of  a  "correspondent,"  see 

transaction,    they    will    tlicrchy   be  Smith  vs.  New  York  Stock  &v.  E.\., 

held  to  have  adopted  the  act  of  the  2ry  .\.  Y.  S.  261. 

indivirlual  partner,    its  to  any  bene-  '  Timpson    vs.   .Mien,    1  I'.t    N.   V. 

fit  to  be  derived  therefrom,  and  as  513;  Wolff  vs.  Lockwood,  75  N.  Y. 

to  resfKMiKibility  for  lo.ss.     Hate  vs.  Supj).  (i()5;  IJoyd  vs.  Yerkcs,  25  111. 

McDowell,  17  J.  &  S.  IOC,     See  also  App.  527. 


210  Stot'k-lirokcrs  ami  Stock   Kxchaii^es. 

appeal  rol'used  to  disturb  it,'  on  tlie  yroiuul  that  R.  A:  F. 
acted  as  agents  of  W.  F.  *fe  Co.  In  all  such  cases,  where  the 
authority  of  the  agent  is  denied,  the  question  is  one  of  fact, 
and  the  prot)f  must  be  the  same  as  would  exist  in  an  or- 
dinary case  between  a  third  person  seeking  to  ciiarge  the 
principal  for  the  acts  of  his  agent,  and  the  burden  would  be 
upon  the  party  asserting  the  fact.  Authoi'ity  in  an  agent 
may  be  implied  from  circumstances,  and  a  customer  has  a 
right  to  rely  upon  the  apparent  authority  of  the  Broker's 
agent.^ 

The  agency  being  proyen,  the  general  rule  applies  in  all 
such  cases  that  a  party  who  employs  an  agent  to  transact 
business  with  third  ])arties  cannot  be  relieved  from  liability 
for  the  misdoings  of  such  agent  in  the  absence  of  neglect  or 
want  of  ordinary  care  on  the  part  of  the  party  injured. 
When  one  of  two  innocent  parties  must  suffer  from  the  act 
of  a  third  person,  he  shall  sustain  the  loss  who  enabled  the 
third  })arty  to  do  the  injury.^  And  the  general  rule  that, 
if  an  agent  has  limited  authority  to  contract,  a  party  with- 
out notice  of  such  limitation  is  not  bound  to  inquire  as 
to  the  extent  of  such  authority,  is  also  applicable,^  but  if 
the  party  has  notice  he  is  put  upon  inquir}'.^ 

When  therefore  a  principal  imposes  a  limit  upon  his 
Broker,  the  former  is  liable  if  the  Broker  exceeds  the  limit.' 
But  if  the  Broker  makes  an  unauthorized  contract  (i.  e.  when 


»  Wells  vs.  Welter,  15  Xev.  276.  *  Rimmer  vs.  Webster,  (1902)  2 

2  Kratt  vs.  Hopkins,  78  X.  Y.  S.  Ch.  163;  Robinson  vs.  Brewing  Co., 

1012;  Briggs  vs.  Kennett,  8  Misc.  (1896)    2   Ch.    841;    Bentinck    vs. 

264;  aff'd  (without  opinion)  149  X.  Bank,  (1893)  2  Ch.  120. 

Y.  577.  *  Xester  vs.  Craig,  69  Hun,  543. 

'  Andre\\'s  vs.  Clark,  72  Md.  396;  'Crabb  vs.  Miller,  24  L.  T.  219; 

Caswell  vs.  Putnam,  120  X.  Y.  153,  Coles  vs.  Bristowe,    L.    R.    4    Ch. 

158,  and  cases  cited  in  note  1,  supra.  14. 


Order  to  Purchase — Price.  217 

instructed  to  buy  the  shares  of  one  company,  by  mistake, 
purchases  those  of  another),  he  is  personally  liable,  on  the 
ground  of  misrepresentation  of  authority,  for  the  fulfilment 
of  the  contract,  and  if  the  shares  are  unsalable,  the  dam- 
ages will  be  the  full  price  named  in  the  contract.^  If  no 
limit  is  placed  upon  the  Broker,  ho  has  implied  authority 
to  contract  subject  to  the  rules  of  the  Exchange  and  reason- 
able customs  (see  chapter  on  Usages),  but  a  vendor's 
Broker  has  not  implied  authority  to  receive  the  purchase 
money  unless  it  mav  be  presumed  from  the  vendor's  acts, 
i.  e.  when  he  gives  the  Broker  share  certificates  or  a 
transfer.^ 

A  Broker  or  Client  dealing  with  an  agent  within  the 
limit  of  his  authority  has  the  right  to  assume  if  not  other- 
wise informed  that  the  authority  of  the  agent  is  unlimited, 
and  when  the  dealing  continues  after  tlie  authority  is  re- 
voked the  principal  is  bound  unless  notice  of  the  revocation 
is  brought  home  to  the  opposite  party .^  But  where  the 
agent  or  office  manager  of  the  Broker  is  given  general  au- 
thority by  the  Client  to  make  purchases  and  sales  for  his 
account,  notice  by  the  Client  to  such  agent  to  cease,  is  bind- 
ing upon  the  Broker,  his  principal,  within  the  rule  that  no- 
tice to  an  agent  touching  the  subject-matter  of  his  agency 
is  notice  to  the  principal,  this  rule  applying  even  where  the 
agent  represents  Ijoth  parties  at  one  time.^ 


'  K\  parte   Paiimuro,  24  f 'h.  l)iv.  mixed  question  of  law  and  fact  to  be 

367.  detennined  l)y  the  eouii,   whether 

'  McDevittvs.  Connolly,  lo   L    II.  the  chaii^^e.s  are  enouf^h   to   put  a 

(lr.).'}f)0.  eu.-^toiiicr    on    iii(|uiry    a.s    to    with 

*  Andrews      vh.      ("lark,      supra,  whom    he    is    dealing.     Lines    vs. 

When  chanpes  arc  nuide  in  a  hrok-  She|)ard,  Hi  Daly,  471. 
crafjc   busineHH    whereh)y    a    former        *  Moyd   vs.   ^'erkes,   '_'.')   III.   .Vpp. 

clerk  becomes  the  proprietor,  it  is  a  .')27. 


218  Slock-brokors  and  Slock  Exchanges. 

(^.)    Dnttj    and    LiahUitji  i>f  Ih'ohrr    in    Purcltashig  ;    Right  to 

I  ltd  emu  it  I/. 

Brokers  or  factors  are  requiiinl  to  act  with  reasonable  dil- 
igence ami  })ruclence  in  tlieir  employment/  and  to  exercise 
their  judgment  and  discretion  Id  the  best  advantage  of  the 
principal.  This  means  that  those  who  deal  with  them,  con- 
tract for,  and  have  a  right  to  expect,  a  degree  of  care  com- 
mensm'ate  with  the  importance  and  risks  of  the  business  and 
a  skill  and  capacity  adequate  to  its  performance.  That  care 
and  skill  is  different  in  kind  from  the  ordinary  diligence  and 
capacity  of  the  ordinary  citizen,  and  the  Broker  is  employed 
for  that  reason."^ 

These  requirements  apply  in  all  cases,  where  an  order  to 
purchase  is  given  to  a  Broker,  whether  the  transaction  is 
to  be  executed  at  a  fixed  price,  or  at  the  market  price,  or  at 
his  discretion,  and  whether  the  Broker  is  acting  for  com- 
pensation or  gratuitously.^ 

A  commission  merchant  or  Broker  must  also  in  his  deal- 
ings with  his  Client  act  in  entire  good  faith,''  and  he  has  no 
right  to  conceal  any  portion  of  his  transactions  and  dealings 
in  relation  to  the  property  alleged  to  have  been  bought  or 


'  Prout    vs.    Chisolm,    21     .\pp.  10.5;   Boyd   vs.    Barrett,    16    Phila. 

Div.  54;  Bate  vs.  McDowell,  17  J.  &  6.53. 

S.  106,  111;  Speyer  vs.  Colgate,  4  ^  Isham  vs.  Post,  supra.  If  a 
Hun,  622;  Leveson  Gower  vs.  May,  Broker  has  a  general  discretion  as  to 
7  T.  L.  R.  696;  Boyle  vs.  Henuing,  purchase  of  securities,  and  gives 
121  Fed.  Rop.  376;  In  re  Vermilye,  evidence  to  prove  a  proper  exercise 
43  N.  J.  Eq.  146;  10  A.  60.5.  If  the  of  such  discretion,  his  client  may 
Broker  acting  in  good  faith,  and  introduce  evidence  contra.  Hop- 
within  the  line  of  his  duty,  inciirs  kins  vs.  Clarke,  158  N.  Y.  299. 
damages,  his  principal  is  liable.  *  AMien  a  sale  of  stock  is  actually 
Maitland  vs.  Martin,  86  Pa.  St.  120,  made  by  Brokers,  and  there  is  no 
124.  evidence  to  show  that  they  acted  in 

^Isham  vs.  Post,  141  N.  Y.  100,  bad  faith,  it  is  error  to  submit  the 


Duty  and  Liability  of  Brokers.  219 

sold.^  His  duty  to  keep  and  render  just  and  true  ac- 
counts is  ''plain  to  the  last  degree.'"- 

A  Broker  who  is  the  agent  of  his  Client  is,  and  ought  to 
be,  required  to  show  fully  and  specifically  each  item  of  the 
account  which  he  charges  against  his  Client.  Furnishing  a 
gross  sum  is  insufficient.  Each  of  the  parties  to  an  account 
is  entitled  to  know  and  to  have  presented  to  him,  when  a 
demand  is  made  for  a  loss,  supposed  orreal,  the  items  which 
make  up  such  loss,  and  to  be  given  an  opportunity  not  only 
to  inspect  and  ascertain  the  correctness  of  the  same,  but  to 
controvert  such  items  whenever  it  becomes  necessary.^  A 
presumption  against  the  Broker's  good  faith  and  honesty 
can  be  drawn  from  his  omission  of  these  duties.^ 

"When  the  Broker  withholds  the  fullest  information  in 
this  respect,  the  right  to  examination  before  trial,  in  an  ac- 
tion brought  to  recover  alleged  profits  or  to  adjust  the  un- 
settled accounts,  should  be  fully  accorded.^  Ilis  refusal  to 
give  such  information  without  compulsion  raises  a  presump- 
tion authorizing  the  strictest  construction  of  the  evidence 
against  him.* 

question  of  their  good  faith  to*  the  N.  Y.  Weekly  Dig.  20,  but  when  an 

jurj-.     Day  vs.  Jameson,  .33  N.  Y.  accounting    i.s    demanded,    a    dis- 

St.  Rep.  .37.'),  379.  covery  of  the  Broker's  books  will  not 

'  Miller   vs.   Kent,   .59    How.    Pr.  be  granted  to  enable  the  client  to 

322,  32.5;  Marvin  vs.  Buchanan,  62  prepare  his  complaint.     Id.     N.  Y. 

Barb.    408;    Talbot    vs.    Doran   &  Z)ai7i/ /Peg.  Nov.  27,  1,SS2;  5  Monthly 

Wright   Co.,   9    X.    Y.   Supp.  478;  L.  BuU.  4. 

Drake    v.s.    Weinman,     33    X.    Y.  '  Miller  vs.  Kent,  supra;  Harding 

Supp.  177;   Drake  vs.  Thompson  &  vs.  Field,  46  X.  Y.  St.  Hep.  628,  and 

Deer  Co.,  .33  .\.  Y.  Supp.  180,  and  ca.ses  supra, 

cases  cited  in  succeeding  notes.  *  Prout    vs.    Chisolm,     21     .Vpp. 

'  Prout  vs.  Chi.solm,  89  Hun,  108;  Div.  .54. 

B.  c.  21  .\pp.  Div.  .54;  Bate  vs.  Mc-  *  See  post,  \).  770,  whcro  the  rem- 

Dowell,   17  J.  A  S.  106;  .Miller  vs.  cdy  is  more  fully  discu.ssed. 

Kent,  10  Wf.kly  Digest,  .362;  s.  c.  23  •  liate  vs.  McDowell,  supra;  Gray 

Hun,  6.57;  Dull  v.s    lIutcirniHon,  19  vs.  Haig,  20  Beav.  219. 


220 


Stock-brokers  and  Stock  Excliuiiges. 


A  Broker  has  no  right  to  adopt  methods  of  business  that 
are  so  intricate  or  toi-tuous  that  Ihey  are  incapable  of  being 
exphiined  to  the  full  comprehension  of  an  ordinarily  intel- 
ligent jury.' 

The  known  usages  of  trade  and  business  enter  into  such 
employment ;  and  if  he  conducts  his  business  with  diligence, 
care  and  good  faith  according  to  such  usages,  he  will  be  ex- 
onerated from  all  responsibility.'^ 

But  a  Stock-broker  cannot  bind  his  Client  by  anything 
done  under  a  rule  of  the  Exchange  which  was  not  made 
until  after  the  instructions  were  given  to  him.^ 


*  Oldershaw  vs.  Knowles,  101  111. 
117. 

^  Bibb  vs.  Allen,  149  U.  S.  481 
Clews  vs.  Jamieson,  182  U.  S.  461 
Hausen  vs.  Boyd,  IGl  U.  S.  403 
Phillips  vs.  Moir,  69  111.  155;  Deshler 
vs.  Beers,  32  IH.  368;  Paton  vs. 
Newman,  51  La.  Ann.  1428;  28 
So.  Rep.  576;  Skiff  vs.  Stoddard, 
63  Conn.  198;  21  L.  R.  A.  102. 
Mitchell  vs.  Xewhall,  15  M.  it  W. 
308;  Westropp  vs.  Solomon,  8  C.  B. 
345;  Pollock  vs.  Stables,  12  Q.  B. 
765;  Tempest  vs.  Kilner,  3  C.  B. 
253;  Bayley  vs.  Wilkins,  7  C.  B.  886; 
Hunt  vs.  Gunn,  13  C.  B.  (n.  s.)  227; 
Taylor  vs.  Stray,  2  C.  B.  (n.  s.)  175; 
Lamert  vs.  Heath,  15  M.  &  W.  486; 
15  L.  J.  Ex.  298;  Morrice  vs.  Hun- 
ter, 14  L.  T.  897;  Inchbald  vs. 
Xeilgherrj'  Coffee  Co.  34  L.  J.  (C. 
P.)  15;  Forget  vs.  Baxter,  L.  R.  A. 
C.  (1900),  467;  s.  c.  82  L.  T.  R.  510; 
Barker  vs.  Edwards,  57  L.  J.  Q.  B. 
147;  Peckham  vs.  Ketchum,  5 
Bosw.  (N.  Y.)  506;  s.  c.  less  fully, 
10  Ab.  Pr.  (X.  Y.)  220;  Van  Du.sen- 
Harrington  Co.  vs.  Jungeblut,  77  X. 


W.  Rep.  970;  Gheen  vs.  Johnson,  90 
Pa.  St.  38:  Sutton  vs.  Tatham,  10 
Ad.  &  E.  27;  Smith  vs.  Lindo,  5  C. 
B.  (n.  s.)  587;  Rosewarne  vs.  Bill- 
ing, 15  C.  B.  (n.  s.)  316;  Remfry  vs. 
Butler,  1  E.  B.  &  E.  887;  Biederman 
vs.  Stone,  L.  R.  2  C.  P.  504;  Chap- 
man vs.  Shepherd,  Whitehead  a's. 
Izod,  L.  R.  2  C.  P.  228;  Webb  vs. 
Challoner,  2  F.  &  F.  120;  M'Ewen 
vs.  Woods,  11  Q.  B.  13;  Bayliffe  vs. 
Butterworth,  1  Ex.  425;  Patterson 
vs.  Iveys,  1  Cin.  Super.  Ct.  Rep. 
(Ohio)  94.  As  to  knowledge  of  the 
usage  by  the  client,  see  Blakemore 
vs.  Heyman,  23  Fed.  Rep.  648; 
Higgins  vs.  McCrea,  23  Fed.  Rep. 
782.  If  the  Broker's  agent  receives 
an  order  forbidden  by  the  Stock 
Exchange  rules,  the  broker  is  liable. 
Xewman  vs.  Lee,  84  X.  Y.  Supp. 
106.    See  also  chapter  on  "Usages." 

'  We-stropp  vs.  Solomon,  8  C.  B. 
345.  As  to  when  evidence  of  Board 
of  Trade  custom  is  admissible,  see 
Ayer  vs.  Mead,  13  111.  App.  625. 

If  a  rule  of  an  Exchange  requires 
a  vendor,  on  receiving  written  no- 


Duty  and  Liability  of  Brokers.  221 

The  Broker  should  hand  over  to  his  principal  money  or 
securities  as  soon  as  he  l^as  received  them,  but  the  CUent 
cannot  insist  on  delivery,  at  the  time  of  the  pa^'ment  of  the 
purchase  money,  if  this  obliged  the  Broker  himself  to  ad- 
vance the  purchase  money,  as  the  Broker  is  under  no  obli- 
gation to  pay  the  price.^ 

In  resi)ect  to  the  character  and  kind  of  stocks  or  securi- 
ties which  the  Broker  may  buy,  he  is  bound  to  purchase 
the  kind  designated  by  the  Client.^  But  if  he  exercises 
prudence  and  care,  he  is  not  liable,  although  the  securities 
purchased  by  him  in  the  regular  course  of  business  prove 
spurious. 

In  the  case  of  "Westropp  vs.  Solomon  ^  the  pLaintiffs  were 
Stock-brokers,  and  were  employed  by  the  defendant  to  sell 
certain  scrip  which  turned  out  to  be  invalid.  The  certifi- 
cates were  such  as  to  deceive  evervbody  who  dealt  in  them. 
There  was  no  fraud  or  negligence  on  either  side.  The 
Brokers  paid  the  purchase  money  back  to  the  vendors,  as 
also  a  certain  sum  which,  under  the  rules  of  the  Stock  Ex- 
change, had  been  prescribed  to  be  paid  in  such  cases.     They 


tice  that  a  default  is  intended,  to  Board  of  Tratle  but  were  fictitioixs 

sell  on  or  before  the  first  open  board  or     "bucket     shop"     transaction!! 

thereafter,  he  must  on  receiving  a  made  in  the  Broker's  own  olHce,  the 

notice  tliat,   for  the  reason  given  Client  may  recover  the  amount  of 

"the  deal   is  off,"  strictly  comply  margins  deposited  by  him  with  the 

with  the  rule,  quite  irrespective  of  Broker.     Mellott   vs.  Downing,   64 

the    reasons    given.     Gill    vs.    (J'-  Pa.  St.  393.     A  Stock-broker  is  an 

Kourke,  G  I'a.  Super.  Ct.  Hep.  G05.  "agent"    within    the    meaning    of 

'Stock  Co.  vs.  Galmfjyic,  3  T.  L.  Coinp.    Laws,    Midiigan,     §  ll.'iT'i, 

K.  SOS.  making  an  agent  criminally  liable 

'  If  tlie  Client  instructs  his  Broker  for  mi.sai)plyiiig  money  sent  to  him 

to  purchase  and  sell  grain  on   lh<!  with  wri(tc!n  instructions  a«  to  its 

Chicago  Boanl  of  Tra<le,  but  it  ap-  application.      I'eople  vs.  Karate,  93 

pcufH  that  the  purchaww  and  huU-m  S.  \V.  Uep.  lOSl. 
were    not    mode    on    the    Chicago       '  8  C.  B.  310. 


222  Stock -brokers  and  Slock  Exchanges. 

then  sued  their  princij)al,  who  did  not  contest  the  right  of 
plaintitf  to  recover  the  principal  sum,  but  defended  as  to 
the  additional  sum,  as  to  whioli  the  defendant  succeeded. 
In  Mitchell  vs.  Newhall '  the  defendant  gave  the  plaintiff, 
a  Broker  on  the  Stock  Exchange,  an  order  to  purchase  for 
him  fifty  shares  in  a  foreign  railway  company.  At  that 
time  no  shares  of  the  company  were  in  the  market,  the 
foreign  government  not  having  yet  authorized  its  establish- 
ment; but  letters  of  allotment  for  shares  were  then,  accord- 
ing to  the  evidence  of  persons  on  the  Stock  Exchange,  com- 
monly bought  and  sold  in  the  market  as  shares.  The 
plaintiff  bought  for  the  defendant  a  letter  of  allotment  for 
fifty  shares,  and  it  was  held,  that  a  jury  might  well  find 
that  this  was  a  good  execution  of  the  order.^ 

In  Lamert  vs.  Heath,^  where  a  Broker  Avas  instructed  to 
purchase  '"  Kentish  Coast  Ilailway  Scrip,"  and  he  bought 
what  was  known  as  such  and  was  paid  for  it,  it  was  held  that 
he  was  not  liable  to  refund  the  money  he  had  received  ;  al- 
though it  turned  out  that  he  had  bought  scrip  issued  with- 
out due  authority,  and,  in  fact,  utterly  worthless. 

So  in  Young  vs.  Cole  ^  a  Broker  brought  an  action  against 
his  Client  to  recover  the  proceeds  of  Guatemala  bonds  which 
he  had  sold  for  his  Client  on  the  Exchange.  The  bonds, 
after  being  a  short  time  in  the  purchaser's  possession,  Avere 
discovered  to  be  unmarketable  for  want  of  stamps,  and  they 
were  returned  to  the  Broker,  who  indemnified  the  purchaser 
without  consulting  with  his  Client.  The  court  held,  upon 
the  authority  of  Child  vs.  Morley,^  that  the  Broker  was  en- 

'  15  M.  &  W.  308.  vs.  Hoy,  13  N.  Y.  Weekly  Dig.  324; 

=  Tempest  vs.  Kilner,  3  C.  B.  253;  aff'd  94  N.  Y.  626. 

Hunt  vs.  Gunn,  13  C.  B.  (ii.  s.)  227.  '  3  Bing.  (N.  C.)  724. 

'  15  iM.  &  W.  486.     See  Luffman  ^  8  T.  II.  610. 


Duty  and  Liability  of  Urokers.  223 

titled  to  recover  from  bis  client  the  sum  previously  paid  to 
him,  on  the  ground  that  the  consideration  on  which  it  had 
been  paid  over  had  failed,  the  Client  having  delivered  some- 
thing which,  though  resembling  the  article  contracted  to 
be  sold,  Avas  of  no  value;  and  that  the  repayment  made  by 
the  Broker  to  the  purchaser  was  necessary,  accoi-ding  to 
the  custom  of  the  Stock  Exchange,  which  treated  a  Broker 
dealing  with  foreign  stock  as  a  principal,  and  made  him 
liable  to  expulsion  if  he  did  not  make  good  his  diffei-- 
ences. 

In  the  case  of  Peckham  vs.  Ketchum,^  a  case  almost 
similar  to  Lamert  vs.  Heath,  the  court  held  that  a  Broker 
who  is  employed  to  purchase  stock,  and  who  in  good  faith, 
and  in  accordance  with  the  custom  of  the  market,  makes 
the  purchase  in  his  own  name,  and  transfers  the  stock 
bought  to  his  principal,  is  not  liable  to  the  principal  if 
the  stock  prove  to  be  spurious.  In  that  case  the  plaintiff 
called  at  the  office  of  defendants  and  ordered  tlieni  to 
buy  ten  shares  of  railroad  stock  at  a  certain  price.  On 
the  same  day  the  defendants  sent  to  the  plaintiff  a  memo- 
randum of  the  purchase,  who  sent  his  check  for  the  same, 
the  defendants  stating  that  they  would  ti-ansfer  the  stock 
referred  to  into  his  name  on  the  books  of  the  coini)any 
that  day,  but  that  the  certificate  would  not  be  rea<ly 
until  the  next  day.  At  the  time  mentioned  they  deiivei-ed 
to  him  a  certificate  in  due  form  for  said  stock,  signed  by 
one  Schuyler,  the  transfer  agent  of  sai<l  raili'oad  com- 
pany, who  was  the  proper  officer  to  issu(;  tli(»same.  In  the 
|)urchase  of  the  stock  th<!  derendants  ;icte«l  in  good  faith 
"in  the  mo<le  usii;d  and  cnstomary  among  Stock-brokers  in 

'5  BoHw.  (.N.  Y.)  fjOfi;  h.  c.  Ichu  fully,   ID  Al).  I'r.  (.\.  V.)  220. 


224  Stock-brokers  and  Stock  Kxchau^es. 

the  city  of  New  York,  among  whom  it  is  not  usual  to  disclose 
the  names  of  their  principals  to  persons  with  whom  they 
dealt,"  and  defendants  paid  for  the  stock  upon  receiving  the 
certificate  from  the  selling  Broker.  The  certificate  issued 
and  delivered  to  the  plaint i If  did  m)t  represent  actual  stock, 
and  was  valueless  ;  and,  upon  the  discovery  of  this  fact,  in  due 
time  the  plaintiff  tendered  the  same  to  defencUints  and  de- 
manded a  return  of  his  money,  which  was  refused,  and  the 
action  was  brought  to  recover  the  same.  In  an  opinion  giv- 
ing judgment  for  the  defendants,  Hoffman,  J.,  after  review- 
ing the  English  authorities  upon  the  subject,  concluded  that 
the  plaintiff,  having  contracted  with  defendants  as  Stock- 
brokers, was  bound  by  the  custom  "which  })revailed  in  rela- 
tion to  that  species  of  business,  and  especially  by  the  usage 
by  which  Brokers  only,  and  not  their  Clients,  are  known 
in  their  dealings  Avith  each  other,  and  that  such  a  custom 
put  the  plaintiff  in  the  same  position  as  in  the  case  of  a  con- 
tract made  distinctly  with  one  as  the  agent  of  a  known  or 
disclosed  principal.  The  court  also  held  tliat  the  employ- 
ment of  the  defendants  could  not  be  justly  treated  as  an  em- 
ployment to  purchase  genuiue  stock  to  the  extent  and  im- 
port of  making  them  guarantors  of  the  validity  of  that 
which  they  should  purchase  ;  it  was  rather  to  purchase  what 
in  the  market  loas  passing  as  stock  of  this  description^ 
and  that  an  agent  employed  to  purchase  a  commodity  of  a 
particular  character  or  quality  is  only  hound  to  use  all  the 
circumspection  and  diligence  which  a  prudent  purchaser 
himself  would  exercise. 

The  conclusion  reached  in  this  case  is  in  accord  with  the 
English  authorities,  and  is  entirely  sound  upon  princii)le, 
there  being  no   just   distinction  in    this   respect   between 


Duty  and  Liability  of  Brokers.  225 

the  employment  of  a  Stock-broker  and  any  other  kind  of 
agent.^ 

So  where  a  person  employing  a  Broker  to  sell  shares  di- 
rected him  by  mistake  to  sell  250,  when  he  intended  to  sell 
and  had  only  50  shares,  and  the  Broker  sold  the  shares  in 
accordance  ^Yith  his  directions,  the  Client  was  held  bound 
to  pay  the  difference  which,  nnder  the  rules  of  the  Stock 
Exchange,  the  Broker  had  been  compelled  to  pay  to  the 
Broker  to  whom  he  had  sold  the  same."^ 

And  the  case  of  Morrice  vs.  Hunter  ^  furnishes  still  an- 
other ilkistration  of  the  general  rule.  There  the  defendant 
instructed    his  Brokers   to   buy  10  Agra  &    Masterman's 

'  Within    the    principles    of    the  a  state  are  constitutionally  issued. 

cases  cited  in  the  text,  the  Broker  is  Otis  vs.   Cullum,   supra.     See  also 

not  to  be  held  to  any  of  the  war-  iEtna  Life  Ins.  Co.  vs.  Middleport, 

ranties  implied  on  the  sale  of  secu-  124    U.    S.    534.     The   decision    in 

rities  and  which  would  obtain  be-  Bischoffsheim  vs.  Baltzer,  20  J"ed. 

tween  his  Client  and  the  opposite  Rep.  890,  to  the  contrary,  might 

party.  better  have  rested  on  the  fact  that 

Between  the  principals  the  rule  there  the  vendor  of  the  unconstitu- 
is  that  "the  seller  is  liable  ex  delicto  tionally  issued  bond,  wiis  really  act- 
forbad  faith,  and  ex  contractu  there  m<r  as  Broker  for  the  vendee  and 
Is  a  warranty  implied  on  his  part  wa.s  sellinj;  him  his  o\\ni  securities, 
that  the  .securities  ljelon<<  to  him  and  But  sec  Ex  parte  Piunnure,  24  Ch. 
are  not  forgeries.     Where  there  Ls  D.  307. 

no  express  .stipulation,  there  Ls  no  -  Sutton  vs.  Tatham,  10  Ad.  &  E. 

liability    beyond    this."     Otis    vs.  27;  see  also,  to  same  effect,  Child  vs. 

Cullum,  92  U.  S.  447.     There  Ls  no  Morley,  S  T.  R.  610;  Lightfoot  vs. 

implied  warranty  of  the  solvency  of  Creed,  8  Taunt.  268;  s.  c.  2  Moo. 

the  corporation,  or  that  the  stock  255.     But  see  Bowlljy  vs.  Bell,  3  C. 

sold  hi  not  part  of  a  fraudulent  over-  B.  284;  Fletcher  vs.  Marsilall,  15  M. 

iflsue.     Peoples  Bank  vs.  Kurty,  11  &  W.  755;  Stewart  vs.  C'auty,  8  M. 

W.  N'.C.  225.     Or  that  the  stock  sold  it  W.  160.     As  to  lial)ility  of  Broker 

Ls  of  a  corporation  de  jure,  Ilarltr  for  stocks  lost  by   or  stolon   from 

V8.  Eltzroth,  111  Ind.  1.39.     Or  that  him,  or  for  los.ses  occ!i.si(»ned  in  the 

it  ha«  gwxi  title  to  its  property,  or  exercise    of    his    employment,    see 

as  U}  its  value.     State  vs.  R.  R.  Co.,  post,  subdivision  (c),  p.  241. 

34  La.  Ann.  947.     .Neither  is  there  '  14  L.  T.  897. 
any  impliwl  warrantv  that  bonds  of 

ir, 


226  Stock-brokers  and  Stock  Exchanges. 

shares,  which  the  Brokers'  manager  b}^  mistake  described 
as  £25  shares  in  phice  of  £50  shares  with  £25  paid,  on 
which  ground  tlie  defendant  attempted  to  repudiate  the 
transaction.  In  an  action  by  the  Brokers  to  recoup  them- 
selves for  i)ayments  made  on  the  Stock  Exchange,  Mr. 
Justice  Wiles  left  it  to  the  jury  to  say  whether  the  order 
given  depended  on  there  being  £25  shares,  or  whether 
the  plaintiffs  had  bought  what  they  agreed  to  buy  for  the 
defendant. 

The  care  incumbent  upon  a  Broker,  it  would  seem, 
does  not  require  him  to  })resent  the  purchased  certificates 
of  stock  at  the  office  of  the  corporation  for  verification  of 
their  genuineness  if  there  is  nothing  on  their  face  to  arouse 
suspicion. 

It  was  so  held  in  respect  to  a  loan  by  a  banker  of  his 
customer's  money  upon  the  security  of  certificates  of  stock,* 
and  the  reasoning  of  that  case  seems  equally  applicable  to 
an  ordinary  purchase  by  a  Broker,  particularly  as  the 
Broker  ordinarily  is  under  no  duty  to  have  the  purchased 
stock  transferred  at  the  company's  ofiice  into  his  Client's 
name. 

Fuller  mention  of  the  case  of  Isham  vs.  Post,  above  re- 
ferred to,  is  pertinent  here,  for  the  transactions  therein  con- 
sidered, i.  e.,  loaning  the  Client's  money  upon  the  collateral 
security  of  shares  of  stock,  are  more  or  less  common  to  all 
stock-brokerage  offices.  It  was  held  that  it  is  not  the 
duty  of  the  Broker  to  inquire  into  the  solvency  of  borrow- 
ers reputed  to  be  responsible,  })articulai'ly  where  there  is  no 
proof  that  inquiry  would  have  developed  any  doubt  of 
solvency.     "Where  the  stocks  upon  pledge  of  which  the  loan 

'Isham  vs.  Post,  141  N.  Y.  100. 


Duty  and  Liability  of  Brokers.  227 

is  made  prove  to  be  forgeries  and  a  question  is  raised  as  to 
whether  the  Broker  gave  the  certiticates  an  examination 
reasonably  careful  under  the  circumstances,  he  is  entitled  to 
show  that  the  forgery  was  so  deft  as  to  deceive  the  reason- 
able scrutiny  of  other  careful  bankers,  and  that  for  an  ex- 
tended time  the  same  forged  certificates  have  been  com- 
monly received  on  the  Street  among  such  bankers  and 
Brokers  as  colUiteral  for  loans.  lie  may  also  show  upon 
this  point  that  he  has  himself  loaned  his  own  money  on 
similarly  forged  certificates.* 

But  it  is  not  enough  to  state  that  he  had  "  carefully  " 
examined  the  certiticates,  without  showing  in  what  that 
care  consisted,  or  that  he  was  possessed  of  any  information 
which  \vould  make  his  inspection  anything  of  a  safeguard ; 
or  that  loans  upon  similarl}''  forged  certificates  had  been 
made  by  other  bankers  and  Brokers  apparently  equally  as 
careless  as  himself.- 

Where  a  Broker  acts  in  pursuance  of  his  authority,  ac- 
cording to  the  usages  of  the  Stock  Exchange  or  of  his 
fellow-Brokers,  and  in  good  faith  and  w^ith  prudence,  he  is 
entitled  to  a  full  intlemnification  for  any  outlays  and 
losses  which  may  occur  in  the  transaction  of  the  business. 
Ills  employment  implies  an  undertaking  to  this  effect  on 
his  employer's  part.  The  general  rule,  in  respect  to  the  re- 
lation between  principal  and  agent,  being  thus; — a  re- 
quest to  undertake  an  agency  or  employment,  the  proper 
execution  of  which  does  or  may  involve  the  loss  or  cxpendi- 
tun;  of  money  on  tluj  part  of  the  agent,  operates  as  an  im- 
plied  ie(juest  on  tli<.'  part  of  the  principal  to  rcimbuisc;  liim 


'  iMlwirn  VH.  I'o.sl,  supra.  '^PP-  l^i^'-  005;  M  S.  Y.  Siipp.  1 1.{7; 

'  iHham  VH.  Post,  on  lu-w  trial,  r.l     aff'd  107  \.  Y.  r,M  . 


228  Stock-brokers  and  Stock  Exchanges. 

for  such  losses  as  may  result  from  the  performance  of  his 
agency.' 

The  hinguage  of  ]\[r.  Justice  Bhickburu  in  Duncan  vs. 
Hiir-^  is  strong  and  apposite  upon  this  questicju  of  tlie 
Stock-broker  to  receive  indemnity  for  acts  performed  in 
the  business  of  his  Clients.  ''  It  must  bo  admitted  that 
the  plaintiffs  Avere  authorized  by  the  defendants  to  enter 
into  contracts  in  their  l)ehalf  according  to  tlie  rules  of  the 
Stock  Exchange.  It  must  bo  admitted  that  for  any  loss 
incurred  by  the  agent  by  reason  of  his  having  entered 
into  such  contracts  according  to  such  rules,  unless  they  be 
wholly  unreasonable,  and  where  the  loss  is  without  any 
personal  default  of  his  own,  he  is  entitled  to  be  iiuleui- 
nified  by  his  principal  upon  an  im[)lied  contract  to  that 
effect."  And  the  case  of  Marten  vs.  Gibbon^  carried 
the  doctrine  still  further  ;  for  in  that  case  where  a  Broker 
at  the  request  of  his  Client  made  a  sale  on  the  Exchange 
to  a  jobber  of  the  prospective  dividends  of  shares  in  a 
railway  company — dealings  in  which,  by  a  rule  of  that 
body,  will  not  be  recognized — and  the  Broker  subse- 
quently paid  differences  to  the  jobber,  it  was  held,  not- 
withstanding the  aforesaid  rule,  that  the  Client  was  bound 
to  refund  these  differences  to  the  Broker,  on  the  ground 
that  the    rule  did  not   affect  the  general   liability  of  the 

'  Bibb  vs.  Allen,  149  U.  S.  481,  L.  T.  R.  (n.  s.)  808;  Hartas  vs.  Rib- 

499;  Bennett  vs.  Covington,  22  Fed.  bons,  22 Q.  B.  D.  254;  Ellis  vs.  Pond, 

Rep.  S16,  819;  Bartlett  vs.  Smith,  L.  R.  1  Q.  B.  D.  (1898)  42G;  Harker 

13  Fed.  Rep.  263;  Arnold  vs.  Smith,  vs.  Edwards,  4  T.  L.  R.  92.     See  for 

85  Ga.  510;  Perin  vs.  Parker,  IS  X.  further    English     cases,    Stutfield's 

E.  Rep.  747;  Knapp  vs.  Simon,  96  Rules  and  Usages  of  the  Stock  Ex- 

N.  Y.  284;  Maitland  vs.  Martin,  86  change,  172. 

Pa.  St.  120;  Duncan  vs.  Hill,  29  L.  =^8  L.  R.  Ex.  242;  rev'g  6  L.  R. 

T.  R.  268;  Thacker  vs.  Hardy,  4  Q.  Ex.  255. 

B.  D.  685;  Smith  vs.  Reynolds,  66  '  S3  L.  T.  N.  S.  561. 


Duty  aud  Liability  of  Brokers.  229 

members  towards  each  other  for  contracts  made  on  the 
Exchange.  AVhere  a  customer  refuses  to  deliver  stock 
which  his  Broker  sells  })ursuant  to  contract,  the  latter  may 
buy  it  for  delivery  at  the  best  price  he  can  and  hold  the 
former  for  the  loss.^  And  a  purchaser  is  bound  to  indem- 
nify a  Broker  Avho  pays  for  and  takes  a  transfer  of  shares 
in  a  company  after  commencement  of  the  winding  up.^ 

If  the  Broker  held  collateral  secuiity  of  the  Clients 
against  the  loss,  he  is  not  required,  in  the  absence  of  a 
special  agreement,  to  realize  thereon,  or  to  return  the  same 
to   the    customer   before   bringing   action   to  recover  the 

'  Baily  vs.  Caruduff,  59  Pac.  Rep.  der  the  rules  of  the  Stock  Exchange, 

407.  was  compelled  to  pay  the  differ- 

*  Chapman  vs.  Shepherd,  L.  R.  2  ences  to  the  jobber.  And  the  court 
C.  P.  228;  Whitehead  vs.  Izod,  id.;  held  that  the  Broker  was  entitled  to 
Emmerson's  case,  L.  R.  1  Ch.  App.  recover  the  sum  which  he  had  so 
433.  A  very  interesting  question  paid  out  by  reason  of  the  conduct  of 
arose  in  the  case  of  Mewburn  vs.  the  Client.  The  court  did  not  pa.ss 
Eaton  (20  L.  T.  Rep.  449)  between  upon  the  question  as  to  whether  a 
a  Broker  and  his  Client.  In  that  vendor  was  bound  to  sign  a  transfer 
case  the  Broker  had  sold  certain  to  the  ultimate  purchaser  in  which 
shares  for  his  Client  on  the  Stock  the  consideration  was  stated  at  a 
Exchange,  and  the  latter  had  exe-  price  greater  than  that  which  he  had 
cuted  the  transfers  and  received  the  received  for  the  shares;  ijut  the  inti- 
purchase  price.  Sub.sequently,  mations  were  that  he  would  not  be 
however,  the  transfers  were  re-  so  compelled.  It  wa.s  held  that 
turned  to  tlif;  Broker  by  the  ulti-  this  objection  had  been  waived  by 
mate  purcha.ser  for  some  trifling  cor-  the  Client  in  originally  signing  the 
rections  in  the  spelling  of  names,  tran.sfer8.  In  Hawkins  vs.  Maltby, 
and  the  Broker  delivere<l  the  same  (L.  R.  0  Eq.  505;  4  Cli.  .\pp.  200), 
to  his  Client  for  that  purpose.  The  the  specific  performance  of  a  con- 
latter,  however,  refii.'^ed  to  "initial"  tract  was  refu.scd,  on  llie  tecluiical 
the  corroctiiiiiM  unless  llic  Broker  grovuid  that  tlie  bill  called  for  the 
paid  him  the  price  iiuMiti(jne«l  in  the  enforcement  of  a  contract  for  a  dif- 
transfers  to  the  ultimate  purchitser,  ferent  consideration  than  that  actii- 
which  w:m  higher  than  the  price  at  ally  agreed  upon.  But  subse- 
which  hi.H  sliartts  were  (»rigiiially  rpiently  the  Broker  was  lield  en- 
Hold.  In  conHCfiucnce,  the  shurtM  titled  to  an  indemnity, 
were  bought  in,  unrl  the  Broker,  un- 


230  Stock-brokers  and  Stock  Exehaiiges. 

amount  lost.'  This  right  to  indemnity  is  not  lost  by  a 
wrongful  termination  of  the  transaction  by  the  Broker.  It 
is  simply  to  be  diminished  in  its  amount  by  the  damage  to 
the  Client.  Thus  the  mere  fact  that  the  Broker  sells,  with- 
out due  notice  to  his  Client  of  the  time  and  place  of  sale, 
and  by  such  act  commits  a  conversion,  does  not  ]n'eclude 
him  from  bringing  an  action  against  his  Client  to  recover 
the  debt  ai-ising  out  of  the  advance  made  by  the  Broker 
to  purchase  the  stock.  This  must  be  deemed  the  settled  rule, 
despite  some  contrariety  in  the  decisions  in  New  York 
State  and  some  opposing  authorities  elsewhere. 

The  point  first  arose  in  Gruman  vs.  Sraith,^  where  the 
action  was  brought  by  the  plaintiff  as  the  assignee  of 
F.  &  Co.,  Stock-brokers,  to  recover  a  balance  due  the 
latter  from  the  defendant,  growing  out  of  a  stock  trans- 
action. After  the  stock  was  purchased,  the  defendant, 
besides  leaving  some  money  as  a  margin,  deposited  the 
stock  in  question  Avith  the  Bi'okers  as  collateral  se- 
curity. The  margin  having  become  exhausted  by  a  sud- 
den decline  of  the  stock  in  question,  the  collateral  was 
sold  without  the  due  notice  of  the  time  and  place  of  sale. 
A  technical  conversion  was  conceded.  The  action  was  sub- 
sequently brought  to  recover  the  above  balance,  the  defend- 
ant having  been  first  credited  with  the  proceeds  of  the  sale 
at  90. 

At  the  trial,  the  court  nonsuited  the  plaintiff  on  the 
ground  that  the  assignee  represented  the  Brokers,  who  were 
the  wrongdoers.  The  plaintiff  claimed  that  this  cause  of 
action  grew  out  of  the  original  purchase  of  the  stock  in  the 


'  De  Cordova  vs.  Barnum,  130  N.        '  81  N.  Y.  25. 
Y.  615. 


Duty  ami  Liability  of  Brokers.  231 

first  place,  and  not  out  of  its  wrongful  conversion  after  it 
became  a  collateral.  But  in  the  Court  of  Appeals  this 
judgment  was  reversed  and  a  new  trial  ordered,  on  the 
ground  that  a  technical  conversion  of  the  collateral  did  not 
of  itself  work  an  extinguishment  of  the  original  claim,  and 
that  the  defendant  was  only  entitled  to  damages  actually 
sustained.  In  sup})ort  of  this  view,  Baker  vs.  Drake '  and 
Markham  vs.  Jaudon  ^  were  cited. 

The  action  was  not  based  upon  the  wrongful  sale,  but 
upon  the  debt  for  the  advance  made  by  the  Brokers  to  pur- 
chase the  stock.  The  title  of  the  stock  when  purchased 
was  in  the  defendant ;  the  advance  of  the  whole  or  a  por- 
tion of  the  purchiise-money  created  the  relation  of  debtor 
and  creditor ;  and  the  stock  put  up  as  security,  together 
with  any  additional  amount  called  a  margin,  was  a  pledge 
to  secure  the  debt. 

The  defendant  was  not  bound  by  the  sale  for  want  of 
notice,  and  might  msist  upon  full  indemnity  for  his  loss  or 
injury  ;  but  such  loss  was  not  necessarily  the  whole  amount 
of  the  plaintiffs  claim. 

The  court,  by  Church,  C.  J.,  upon  this  latter  point  said : 
"  The  stock  sold  at  90.  Suppose  that  was  then  its  full 
value,  and  it  liad  gone  down  to  50  and  remained  there,  it 
is  very  clear  that,  so  far  from  being  injurotl,  the  defendant 
would  have  been  benefited  by  the  sale.  The  defendant 
cannot  claim  a  greater  benefit  than  would  have  been  derived 
if  the  act  complained  of  had  not  been  committed.  Tlio  de- 
fendant might  have  shown  that  the  market  vahie  of  the 
stock  at  tlie  time  of  the  sale  exceeded  the  price  for  whieh  it 
was  s(jld,  and  he  was  entitled  to  a  reasonable  time  after 

'53  N   Y.  211.  »n  id.  435. 


232  Stock-brokers  and  Stock   Kxcliaiii^es. 

notice  of  the  sale  to  replace  the  stock;  jiiul  if  in  the  mean- 
time it  had  advanced  in  price,  the  defendant  would  have 
been  entitled  to  the  ditference.  Beyond  this,  he  was  not 
legally  injured." 

And  these  propositions  were  again  confirraed  by  the 
New  York  Court  of  Ap]>eals  in  Caprou  vs.  Thompson.' 

But  later  the  Second  Division  of  the  Court  of  Apj)eals  in 
Gillett  vs.  AVhiting,'^  rofei'ring  to  tlie  language  of  the  lower 
Appellate  Court,  that  the  fact  of  conversion  did  not  go  to 
the  whole  damages  asked  by  the  Broker  but  entitletl  the 
Client  to  a  reduction  of  the  Broker's  demand  b\'  the  amount 
2)roven  to  have  been  suffered  by  the  conversion,  and  that 
no  such  amount  was  proven,''  said  "  We  d(j  not  under- 
stand this  to  be  the  law.  This  action  was  based  upon  the 
performance  of  the  agreement  by  the  plaintiffs,  in  which 
they  undertook  to  carry  for  the  d(?fendant  the  stock  pur- 
chased, and  if,  instead  of  performing  the  contract  on  their 
part,  they  converted  the  stock  to  their  own  use,  they  had  no 
ground  of  complaint  or  cause  of  action  against  th(3  defend- 
ant." There  was  no  mention  in  the  briefs  of  counsel  or 
in  the  opinion  of  the  court,  of  the  cases  of  Gruman  vs. 
Smith  and  Capron  vs.  Thompson,  and  the  court  assumed 
that  the  only  basis  for  the  decision  of  the  General  Term 
was  the  case  of  Baker  vs.  Drake,  which  was  held  to  be  dis- 
tinguishable. This  view  was  then  followed  by  the  Gen- 
eral Term  of  the  Supreme  Court  in  Minor  vs.  Beveridge,* 
but  when  these  two  cases  came  again  to  the  Court  of  Ap- 
peals,' the  coui-t   re-declared  the  doctrine  of  Gruman  vs. 


'86X.  Y.  418.  «67Him,  1. 

'  120  X.  Y.  102.  5  Gillett  vs.  Whiting,  141  N.  Y.  71; 

s  23  J   &  S.  187,  188.  Minor  vs.  Beveridge,  141  N.  Y.  399. 


Duty  ami  Liability  of  Brokers.  233 

Smith  and  Capron  vs.  Tliompson  and  said  that  the  remarks 
on  the  first  appeal  in  GiUett  vs.  Whiting  were  obiter  and 
not  necessary  to  the  decision  of  that  appeal. 

Bartlett,  J.,  said,  in  the  second  appeal  in  Minor  vs. 
Beveridge  :  "AVe  think  the  trial  Judge  should  have  sub- 
mitted these  questions  (viz.,  whether  the  Client  sustained 
loss  on  the  sale,  and  as  to  whether  he  could  have  replaced 
the  stocks  sold  within  a  reasonable  time)  to  the  jury  under 
the  settled  law  of  this  court  that  even  where  a  Stock-broker 
sells  without  due  notice  stock  purchased  by  him  for  a  cus- 
tomer, on  a  margin,  and  held  in  pledge  to  secure  the  advance 
made  by  him  for  the  purchase,  he  does  not  thereby,  as 
matter  of  law,  extinguish  his  claim  against  the  customer  for 
the  advance,  Ijut  the  customer  is  entitled  to  be  allowed  as 
damages  the  difference  between  the  price  for  which  the 
stock  sold  and  for  which  he  received  credit,  and  its 
market  price  then,  or  within  such  reasonable  time  after 
notice  of  sale,  as  would  have  enabled  him  to  replace 
the  st(K-k  in  case  the  market  price  exceeded  the  price 
realized.'" 

In  certain  other  jurisdictions,  however,  the  doctrine  stated 
in  GiUett  vs.  Whiting,  suj>ra,  is  in  effect  adopted.  These 
cases  are  referred  to  in  note.^ 

So  when  Stock-brokers  are  sued  for  illegally  converting 


See  also  Quinlan  vs.  Raymond,  X.  Iu>    recovered    under    the    coinmoM 

Y   Daily  Rtg.  July  29,  1880;  ufT'd  3  fo\iiit.sin  lussuinpsit.    Ellis  vs.  I'uiid, 

N.  Y   St   Hep.  .07:^.  1  Q.  U.  1).  ( 18<JS)  ILMJ.     In  tliLs  lat- 

'  141  \.  Y.  at  103.  ter  com',  however,  lliere  wjus  a  di.s- 

'  liail  vs.  Clark,  28  Fed.  Rep.  179;  HentiMi:    ojiinion    and    the    ca-sc    i.s 

DenUjn    vs.   Jaekson,    100   111.   ■\X\,  elahorately    considered    and    criti- 

437;    Larminie   vs.  ("arley,    111    111.  eiscnl  in  an  article  in  23  L.  .M.  and 

196,  in  which  c;i.sc  it  w:lh  also  ln'ld  \U'V.    |).    3.1.'i.     S«-c   also    I-accv    vs. 

that  the  murginH  deposited  iniKht  Hill,  Sdini.  CI.  L.  R.  SCIi.  '.rjl. 


234  Stock-brokers  and  Stock  Kxchjinges. 

plaintiff's  stocks,  they  may  interpose  a  counterclaim  for  the 
(leliciency  on  such  sale.' 

But  the  Broker  has  no  right  to  recover  indemnity  for  acts 
beyond  the  scope  of  his  authority.^  This  proposition  is  well 
illustrated  in  the  case  of  Bowlby  vs.  Bell.^  In  that  case  a 
Broker  was  employed  to  sell  shares,  and  made  a  bargain  on 
the  Stock  Exchange  for  the  purpose.  The  scrip  having 
been  sent  to  the  company's  office  for  registration,  the 
Broker  failed  to  deliver  registered  shares,  and,  after  notice 
from  his  Client  not  to  do  so,  paid  the  difference  due  on  a 
"  buying  in  "  of  other  shares  at  an  advanced  price  against 
him.  He  claimed  to  recoup  the  same  as  money  paid  to  the 
Client's  use.  The  price  of  the  shares  had  not  been  paid  to 
the  latter,  and  no  transfer  had  been  tendered  by  the  pur- 
chaser; and  the  court  was  of  the  opinion  that,  as  the 
Broker  of  the  purchaser  had  made  no  such  tender,  he  was 
not  in  a  position  to  take  an}'^  steps  against  the  Broker  of  the 
vendor ;  and,  therefore,  the  difference  paid  by  the  latter 
was  paid  in  his  own  wrong,  and  could  not  be  recovered 
from  his  principal.  In  this  case  it  appeared  that  the  contract 
made  by  the  selling  Broker  Avas  for  the  sale  of  registered 
shares.  Upon  this  point  the  court  said  :  "  If  the  contract 
was  for  unregistered  shares,  it  may  be  collected  from  the 
correspondence  that  the  defendant  did  not  authorize  the 
])laintiif  to  make  such  a  contract ;  and  if  he  did  make  it, 
and  thereby  incurred  a  liability  to  have  shares  bought  in 


•  Wicks  vs.   Hatch,    62    id.    535.  446.     See     also     cases     heretofore 

To  same  effect,  Work  vs.  Bennett,  cited  under  this  head. 

70  Pa.  St.  484.  ^  3  C.  B.  284,  decided  on  the  au- 

'  .\s  to  when  a  Broker  is  within  his  thority  of  Stephens  vs.  De  Medina, 

authority  if  he  acts  in  good  faith,  4  Q.  B.  422. 
see  Matthews  vs.  Fuller,  123  Mass. 


Duty  and  Liability  of  Brokers.  235 

against  him,  be  cannot  charge  the  defendant  with  the  loss 
sustained." 

A  similar  result  was  reached  in  Fletcher  vs.  Marshall/ 
where  the  plaintiff  employed  the  defendants  as  Brokers  to 
buy  shares  for  him  to  be  delivered  within  a  "  reasonable 
time ; "  and  the  defendants  made  a  bargain  for  the  next 
settling-day  with  H.,  who  did  not  then  deliver,  yet  they 
paid  the  purchase-money  ;  and  it  was  held  by  the  Court  of 
Exchequer  that  the  words  "  reasonable  time  "  were  rightly 
interpreted  by  the  usages  of  the  Stock  Exchange,  and  that 
on  non-delivery  of  the  shares  on  the  settling-day  the  de- 
fendants ought  not  to  have  paid  the  money,  and  that  an 
action  would  lie  against  them  by  the  plaintiff  to  recover 
it. 

So  authority  to  a  Broker  to  invest  a  sum  of  mone}'^ 
deposited  with  him  for  the  purpose,  in  certain  stocks,  does 
not  authorize  a  larger  investment,  and  the  Client  may  recover 
the  value  of  the  stock  ordered,  in  an  action  on  an  account.- 
Nor  can  the  Broker  recover  where  the  loss  is  caused  l)y  his 
own  default.^  But  he  cannot  be  deprived  of  his  indemnity 
for  commissions  and  expenses  on  the  ground  that  he  has 
not  avoided  a  contract  which  was  not  in  strict  conformity 
with  the  statute  of  frauds,  in  the  absence  of  any  instructions 
of  his  principal  ncjt  to  comply  therewith."* 

'  15  .M.  <t  W.  755;  consult  also,  in  As  to  wlieii  it  is  error  to  diroct  u 

this  connection,  Stewart  vs.  Cauty,  money   verdict  for  a  Client  for  an 

8  M,  &  \V.  WjO.  amount  admitted  hy  the  Hrokers  to 

*  Bradfield  vs.  Patterson,  lOG  .\la.  I»e  due,  when  it  appears  that  the 
397.  huHl)and   <if    the    Client    advanced 

'Duncan   vs.   Hill,    L.    H.  S  Ex.  more  than   the  amount  due,  u|M>n 

242,  unless  the  Client  elects  to  he-  his    wife's    ac<'ount,     conditionally 

coniel>o<md  therefor  hy  ratification,  upon  the  hitter's  account  heint;  lia- 

IlartuM  vs.  IlihhoiiM,  22  (^   H.  D.  251.  i)le  to  indenmify  the  husi)and's  ac- 

*  Bibb  vs.  .\Ilen,    119   U.  S.    IHl.  count  fur  tiie  amount  so  advanced. 


236  Stock-brokers  ami  Slock  Kxclianges. 

As  the  oljject  of  carrying  stock  on  a  margin  is  to  enable 
the  customer  to  realize  a  prolit  if  there  is  an  advance,  or  to 
permit  the  Broker  to  close  the  transaction  if  there  is  a 
depreciation  exhausting  the  margin,  and  tlie  customer  does 
not  respond  to  a  call  for  further  margins,  the  Client  need 
not  pay  a  balance  due  in  the  transaction  until  a  request  for 
payment  has  been  made'  and  the  statute  of  limitations  ac- 
cordingly does  not  run  till  such  demand  by  the  Broker.^ 
And  a  Broker  must  not  incur  any  expense  on  the  ])i-incipal's 
behalf  which  the  Broker  can  avoid.  According^,  where — 
acting  on  the  supposed  instructions  of  his  principal,  who 
wished  to  repudiate  a  contract  for  the  purchase  of  shares — 
a  Broker  defended  an  action  which  was  virtually  without 
legal  merit,  and  sued  his  principal  for  the  price  of  the 
shares  and  costs  of  the  former  action,  the  price  having 
been  paid  into  court,  the  trial  justice  directed  a  non-suit.' 

A  principal  in  a  stock  transaction  cannot  avoid  his  liabil- 
ity to  his  Brokers  for  a  loss  by  setting  up  the  guaranty  of  a 
third  party.  In  Lee  vs.  Gargulio  '  the  plaintiff,  it  appeared, 
had  certain  stock  transactions  in  which  defendants  acted  as 
his  Brokers,  in  which  there  was  a  loss.  He  sought  to  avoid 
this  loss  by  introducing  a  guaranty  signed  by  one  F.,  which 
was  enclosed  in  a  letter  to  defendants.  The  letter  began, 
"  Yours,  notifying  me  of  acceptance  of  my  offer  by  customer 
at  35,  at  hand.  I  accept  his  conditions  as  set  forth  in  your 
letter,  and  enclose  guaranty,  etc."  The  guaranty  enclosed 
was  in  these  w^ords :  "  For  and  in  consideration  of  one  half 


see  Bood\-  vs.  Pratt,  45  Atl.  Rep.  '  Clegg  vs.  Townsend,    10  L.   T. 

598.  ISO. 

»  Kennedy  vs.  Budd,  5  App.  Div.  *  45  \.  Y.  Super.  Ct.  (13  J.  &  S.) 

140.  695. 


Duty  and  Liability  of  Broilers.  237 

the  profit  on  800  shares,  etc.,  I  hereby  guarantee  the  holder 
of  said  800  shares  against  all  or  any  loss  whatsoever ;  and 
further  agree,  in  case  of  decline  of  said  stock  below  35,  to 
deposit  nuirgin,  if  called  on  to  do  so,  to  cover  all  or  any 
decline  as  fast  as  it  uiaj''  be  made  in  said  stock.  Orders  to 
sell  and  repurchase  said  800  shares,  or  any  part  thereof, 
to  be  given  exclusively  by  me,  the  undersigned,  for  a  period 
of  sixty  days  from  the  date  hereof."'  Held,  that  by  accept- 
ing the  guaranty  the  Broker  did  not  discharge  the  principal, 
and  that  it  was  not  inconsistent  with  the  original  agree- 
ment. 

Where  a  promise  that  a  guarantor  will  become  liable,  is 
part  of  the  inducement  on  which  the  Broker  acts,  there  is 
sufficient  consideration  for  the  subsequently  signed  contract 
of  the  surety.^ 

But  in  ail  action  against  a  surety  who  has  agreed  in  writing 
to  indemnify  a  Stock-broker  against  losses  in  any  stock  specu- 
lations which  the  Broker  might  make  for  his  Client,  the  ac- 
counts rendered  to  the  latter  by  the  Broker,  which  showed 
a  loss,  and  were  admitted  to  be  correct  by  the  Client,  are 
not  admissible  against  the  surety.  In  such  a  case,  the  party 
holding  the  indemnity  claiming  loss  against  his  indemnitor 
must  pnn'e  it  by  evidence  competent  against  him.  He  cannot 
prove  it  by  the  mere  admissions  or  statements  of  the  prin- 
cipal, however  formally  made.  The  admissions  of  the  Client 
are  no  part  of  the  res  (jesUn  so  as  to  be  binding  upon  the 
surety.^ 

'  Oppenheim  vs.   Waterbury,  86  fitooks  for  a  certain  timo  or  until  ii 

Hun,    122;    'i3    .\.    Y.    Supp.    IS.'i;  certain    price   is    rcachotl,    he   may 

liraiidt  on  SuretyHhip,  2d  ed.  §  17.  recover  upon  it  at  its  maturity  and 

'  Hatch  vs.  Klkins,  65  N.  Y.  4S9.  hold   the  proceeds  against  loas  on 

If   a   note   is   ^i^f'"   to   secure   th«?  the  closinR  of  the  tran.saction,  and 

Broker    against    loss    on    carrying  this  irrespective  of  whether  \w  had 


238  Stock-brokers  aud  Stock  Excliauges. 

A  guaranty  against  loss  on  the  purchase  of  certain  shares 
is  not  a  continuous  guaranty  against  loss  on  subsequent 
transactions  in  buying  and  selling  shares  of  the  same  stock 
where  they  are  so  interniinglecl  that  it  is  impossible  to  say 
whether  or  not  there  was  a  loss  on  the  shares  originally 
purcliased.* 

A  Broker  also  is  not  entitled  to  indemnity  for  losses  on 
transactions  for  a  corporation  acting  ultra  vires.  This 
conclusion  was  reached  in  re  London,  Hamburg,  and  Con- 
tinental Exchange  Bank — Zulueta's  Claim.-  That  case  arose 
in  the  winding-uj)  of  a  banking  company.  It  appeared 
that  the  directors  of  the  bank  had  given  orders  to  their  Bro- 
ker to  buy  for  the  bank  a  large  number  of  their  own  shares 
for  the  purpose  of  keeping  up  the  price.  Although  the 
order  was  ultra  vires,  it  was  executed  by  the  Broker  in  due 
course,  some  of  the  shares  being  taken  and  paid  for  by  tlie 
directors  and  their  friends,  and  the  balance  was  transferred 
to  a  trustee  for  the  company ;  and  the  Broker's  account 
with  the  bank  was  credited  with  the  price.  The  question 
was  whether  the  Broker  was  at  liberty  to  prove  for  this 
amount  in  the  winding-up  of  the  company.  Lord  Eomilly, 
the  Master  of  the  Rolls,  held  the  proof  should  be  admit- 
ted, on  the  ground  that  it  was  not  the  duty  or  business  of 
the  Broker  to  decide  whether  the  directors  were  or  were  not 
exceeding  their  powers ;  and  as  the  transaction  was  con- 
cluded, and  the  Broker's  account  with  the  bank  credited 
with  the  price  of  the  shares — which,  in  the  opinion  of  the 
Master  of  the  Rolls,  was  equivalent  to  the  payment  of  money 
— the  only  remedy  of  the  shareholders  should  be  to  require 

suffered  loss  at  the  time  of  suing  on        '  Strong  vs.  Lyon,  63  N.  Y.  172. 
the  note.     Hertzfield  vs.  Aaron,  17        '  L.  R.  9  Eq.  270. 
W.  D.  309. 


Duty  and  Liability  of  Brokers.  239 

the  directors  personally  lo  refund  it.  But  this  decision  was 
reversed  on  appeal/  and  the  transaction  held  to  be  wholly 
void  ;  and  the  Broker  \vas  held  bound  to  know  that  the 
directors  were  acting  ultra  vires — the  court  intimating  that 
even  if  the  money  had  been  actually  paid  over  to  the  Broker 
by  the  directors,  he  would  have  been  liable  to  refund  it.' 
But  where  an  application  was  made  by  Stock-brokers  to  be 
declared  creditors  of  a  company,  and  it  appeared  that  the 
manager  and  certain  directors,  having  associated  themselves 
together  in  a  body,  called  a  "  syndicate,"  for  dealing  in  shares 
of  the  company,  emplo3'ed  the  applicants  to  borrow  money  for 
them  on  the  security  of  shares  of  the  company,  which  the  a}> 
plicants  effected  by  lending  shares  on  several  occasions  to  deal- 
ers on  the  Stock  Exchange,  who  advanced  the  market  value 
of  the  shares  until  a  subsequent  account-day.  In  the  in- 
terim a  call  was  made  on  S20  shares  thus  lent  by  the 
claimants,  which  they  paid  ;  and  the  value  of  the  shares 
falling,  and  thi-ir  princi[)als  not  giving  them  instructions 
to  renew,  the  apjilicants  at  the  end  of  the  period  sold  the 
shares  at  a  loss,  and  repaid  the  lenders  of  the  cash.  The 
balance  of  sums  due  the  applicants  on  these  accounts  was 
the  sum  claimed.  One  of  the  "  syndicate  "  was  a  brother  of 
the  aj)plic-ant  B ;  but  the  applicants  deposed  that  they 
had  in)  knowledge  of  the  existence  of  this  body,  and  be- 
lieved throughout  that  they  were  dealing  witli  proj)erty  of 
the  company  by  the  direction  of  its  authorizetl  agents.  It 
was  objecte<l  that  the  claim  was  illegal,  upon  the  ground 
that  tin;  aj)j)lic;intskn<'W  that  these  transactiojis  were  circi-ted 
without  tlu!  knowh;dgc  of  the  shareholders  ;   and,  if  not, 


'  S.  c,    rev'd    \..    1(     .')   't,.   Apj).        'Sen  iil.so,  in  IIiIh  roniioction,  Jo- 
444.  HcphH  VH.  i'ebrer,  3  li.  &  C.  039. 


240  Stock-brokers  Jiiid  Stock  Exchanges. 

the  transactions  were  beside  the  company's  powers  :  they 
must  show  that  they  held  these  shares  as  a  securit}' ;  and,  if 
they  dill,  that  they  have  aright  to  be  indeniniiied.  But  the 
vice-cbiincellor  said  the  applicants  had  dealt  with  ostensible 
managers  of  the  company  in  a  regular  way.  If  the  articles 
had  strictly  forbidden  the  raising  of  money  on  behalf  of  the 
company  by  this  means,  there  might  have  been  a  question 
as  to  whether  the  Brokers  were  not  bound  to  take  notice  of 
such  a  provision  ;  but,  in  fact,  there  was  no  such  prohibition. 
No  question  as  to  the  hona  fides  of  the  transaction  could 
arise  ;  for  it  seemed  that  these  transactions  were  examined 
b}'^  the  directors  from  da}'  to  day.  The  question  resolved 
itself  simply  into  one  of  indemnity,  and  the  rule  that  it  is 
the  duty  of  principals  to  indemnify  their  agents  must  pre- 
vail. The  mortgage  might  have  been  effected  by  some  other 
means  than  by  the  loan  of  shares  and  then  no  question  as 
to  the  right  to  be  repaid  could  have  been  raised.  The  claim 
was  accordingly  allowed.^ 

So,  too,  where  a  savings-bank,  having  taken  certain 
shares  of  stock  to  secure  a  loan,  resolved  that  it  should  be 
sold  by  the  president  for  the  best  interest  of  the  bank. 
The  president  sold  a  part  of  the  stock,  and  directed  the 
plaintiff,  a  Stock-broker,  to  sell  the  remainder  at  a  price 
named  at  the  New  York  Stock  Exchange;  which  lie  did, 
and  so  advised  the  president,  whereupon  the  latter  in- 
formed him  that  he  had  himself  previously  sold  the  stock. 
Plaintiff,  being  unable  to  deliver  the  stock  to  the  Broker  to 


*  In  re  Imperial  Mercantile  Credit  and  to  repay  plaintiffs  for  calls  on 

Assoc,  2  Week.  Notes  (1867),  131.  the    shares   (Robins  vs.   Edwards, 

A  bill  lies  by  Stock-brokers  to  com-  id.    197).      First    Nat.    Bank    vs. 

pel   the   defendant   to    accept   the  Hoch,  20   .\lb.   L.  J.   215;   Pa.  St. 

transfer  of  shares,  bought  for  him,  May,  1879. 


Disposition  and  Safe-keeping  of  Stocks.        241 

whoui  he  had  sold  it,  was  compelled  to  pay  the  purchaser 
differences.  In  an  action  against  the  receiver  of  the  banlc 
to  recover  the  amount  so  paid — held,  that  the  bank  was 
liable  to  the  plaintiff  for  the  damage  occasioned  by  the  act 
of  its  president ;  and  that  the  liability  of  the  bank  was 
not  affected  by  the  fact  that  it  was  forbidden  by  statute 
to  loan  money  upon  personal  security,  such  a  transaction 
being  not  void  but  merely  voidable  by  the  borrower.^ 

(c.)  Disposition  of  Stock  ivhen  Purchased  ;  Safely  Keeping  same  ; 
Liability  to  Keep  Ide7itical  Stock  Purchased^  etc. 

After  the  stock  has  been  purchased  and  paid  for  by  the 
Broker,  several  questions  arise  respecting  the  care  and  dis- 
position thereof. 

AVith  respect  to  the  care  which  the  Broker  should  exercise 
in  keeping  the  securities  of  his  Clients,  it  seems  to  be  settled 
that  if  tlie  securities  be  stolen  from  or  lost  by  the  Broker 
he  is  not  liable  unless  the  theft  or  loss  arose  from  or  was 
connected  with  a  want  of  ordinary  diligence  or  care  on  his 
part.'' 

In  tiie  case  of  Abbett  vs.  Frederick^  it  was  held  that  a 
paw^n-broker,  where  his  place  of  business  was  broken  into 
and  articles  pledged  taken  therefrom,  was  not  liable  if  he 
exercised  ordinary  diligence.  The  court  said:  "The  rule 
laid  down  in  the  case  of  Arent  vs.  Squires,*  that  in  cases  of 

'SLstare  vs.  Best,   10  Hun,  Oil;  liaiik,  .W    Me.  275;    Deurborii    vs. 

aflf'd  S8  N.  Y.  527.  riiioii   Nut.  Bunk,  5.S  id.  27:J;  (il  ul. 

»  2  Para,  on  Cont.  8th  ed.  vol.  2,  .JO'J. 

p.  117  (Wottoni  pa^iiiK),  mid   cases  '  Supru.    To   same   effect,    Laing 

cited;  1  Inst.  89  a;  4  Hop.  8.3  b;  Ab-  vs.  MIuimuu.t,  1  City  Court  (.\.  Y.), 

bett  vs.  Frederick,  .50  How.  (N.  Y.)  2.18. 

Pr.  08;  Tliird  .Nut.  Hank   vs.  Boy<l,  «  1  Duly,  317. 
44  .Md.  17;  Jonkins  vs.  .Nat.  Village 

V'> 


242  Stock-brokers  and  Stock  Exchanges. 

pawn  or  pledge  all  that  has  ever  been  required  since  the 
days  of  Bracton,  by  the  common-law,  on  the  part  of  the 
pawnee,  has  been  that  which  is  required  of  warehousemen, 
the  exercise  of  ordinary  diligence,  is  the  law  which  must 
govern  this  case."  So  where  a  bank  receives  stocks  or  bonds 
as  collateral  security  for  the  repayment  of  a  loan,  it  is  not 
liable  for  their  loss  unless  there  has  been  an  absence  of  proper 
and  sufficient  care  on  its  part,  and  this  is  a  question  for  the 
jury.i 

Lord  Holt  quotes  Bracton  to  the  effect  that,  if  a  creditor 
takes  a  pawn,  he  is  bound  to  restore  it  upon  pa3nTient  of  the 
debt ;  but  if  the  pledge  be  lost  while  in  the  possession  of  the 
pledgee,  and  the  latter  has  used  due  diligence,  he  will  be  in- 
demnified notwithstanding  the  loss,  and  lie  may  resort  to  tlie 
pledgor  for  the  debt."'^  But  in  the  case  of  Cutting  vs.  Marlor ' 
it  was  held  that  a  corporation  is  liable  for  stocks  and  bonds 
deposited  with  it  as  collateral  security  for  a  loan  which  have 
been  abstracted  and  misappropriated  by  one  of  its  officers 
who  was  permitted  to  have  unrestrained  control  of  the 
affairs  and  assets  of  the  corporation,  and  where  the  trustees 

'  Third    Nat.    Bank     vs.    Boyd,  the  safety  of  securities  transferable 

supra.  by  dehvery,  and  as  to  shares  which 

^  Bracton,  99  b;  see  also  Schouler  a  company  requires  to  be  registered 
on  Bailm.  3d  ed.  §  204  et  seq.,  and  in  a  single  name,  see  Consterdine 
cases  cited;  Third  Nat.  Bank  vs.  vs.  Consterdine,  31  Beav.  330.  See 
Boyd,  supra.  The  liability  of  trus-  also  Speight  vs.  Gaunt,  9  App.  Cas. 
tees  does  not  extend  to  cases  of  1  (in  which  a  tnistee  was  held  not 
robbery  or  fraud  beyond  the  care  liable  to  his  cestui  cjue  trust  for 
which  a  prudent  man  would  take  misappropriation  of  the  purchase 
of  his  ownproperty  (Morlcy  vs.Mor-  price  of  trust  securities  by  a  Stock- 
ley,  2  Ch.  Cas.  2;  Jones  vs.  Lewis,  2  broker)  and  Magnus  ^-s.  Bank,  37 
Ves.  Sen.  240)  Exp.  Belchier,  Amb.  Ch.  Div.  476  (to  the  effect  that 
218;  and  see  Bostock  vs.  Floyer,  L.  tnistees  may  render  themselves 
R.  1  Eq.  26).  As  to  precautions  liable  through  negligence), 
which  trustees  of  shares  payable  to  ^8  X.  Y.  Weekly  Dig.  345;  aff'd  78 
bearer  should  take  with  regard  to  N.  Y.  454. 


Disposition  and  Safe-keeping  of  Stocks.        243 

omitted  to  exercise  a  proper  oversight  over  the  conduct  of 
sucli  officer.  And  this  case  is  equally  applicable  to  Stock- 
brokers who  receive  stocks  of  their  Clients  as  collateral  or 
otherwise,  and,  through  fraud  or  negligence,  allow  them  to 
be  lost  or  misappropriated.'  This  principle  has  also  been 
extended  to  a  case  where  a  firm,  in  the  course  of  its  business, 
received  money  belonging  to  third  persons,  and  one  of  the 
partners  misapplied  it  while  it  was  in  the  custody  of 
the  firin  ;  and  it  was  held  that  the  latter  must  make  it 
good  .2 

And  the  cases  just  cited  directly  hold  that  where  stocks 
or  money  are  received  (jr  lield  by  a  firm  of  Stock-brokers 
for  its  Clients,  and  an  individual  member  converts  or  mis- 
applies the  same,  the  remaining  partnei's  are  liable  to  the 
Clients,  although  they  liad  no  knowledge  of  the  conversion 
or  misapplication. 

Brokers,  too,  are  liable  to  a  Client,  where  their  Clerk 
converts  the  securities  purchased  and  delivers  forged  certif- 
icates to  the  Client  in  their  place,  unless  the  Avrong  doing 
might  have  been  prevented  by  ordinary  care  on  the  part  of 
the  Client,  and  even  then  if,  by  the  exercise  on  the  part  by 
the  Broker  of  due  and  reasonable  care  as  to  the  duties  of  the 
clerk,  the  loss  would  not  have  occurred." 

•  If  a  Stock-broker  receives  a  se-  Ribeyrc  vs.  Barclay,  2.'}  Bcav.  107; 

rurity  from  the  owner  for  safe-keep-  Stone  vs.  Marsh,  G  B.  &  C.  551 ;  and 

inp,  and  without  authority  delivers  Ry.  &  Moo.  3G4;  see  also,  in  this 

it  to  the  corporation  by  whom  it  is  connection,    Butler    vs.    Finck,    21 

cancelled,    and    a    new    certificate  Hun  (N.  Y.),  210;  Bri^j^  vs.  Ken- 

i.s.sue«l   to  aiKjthcr,   he   is  lial)l<!  for  nctt,   X.  V.   L.  J.  .May   10,   ISO  I;  S 

coiivertiii;;  the  stock,      liiiblicll  \s.  Misc.  2(>1.     .\s  to  lialiility  of  corpo- 

lilaiidy,  .S7  .Mi<li.  20*.).  ration    for    act    of    its    oflicers    in 

'  1  I.iiidley  on  I'art.  Otli  <?d.  J).  Hi?  fraiululcntly     and     illc^^ally    issuinj^ 

ct  Hc<i  ,  mid  cii.si's  c-ite<l;   Hevayncs  Hfock    (•crtificatcs,  s<'(!   post,   |).   I'M 

vs     Noble    Miarinj^'s  c;iw'),    1    .Mcr.  et  He<j. 
Id  1 ;  Sadler  vs.  Lw,  G  Bcav.  .'i2J ;  De        '  .\ndrews  vs.  Clark,  72  M<i    IVM. 


244  Stock-brokers  and  Stock  Exchanges. 

In  a  case  in  Pennsylvania  *  the  question  was  discussed  as 
to  tlie  liability  of  a  Stock-broker  for  margins  which  he  had 
placed  in  the  hands  of  a  fellow  Broker  to  cover  transactions 
of  his  Client.  The  court  laid  down  the  rule  that  where  the 
Broker  acted  in  good  faith,  and  in  accordance  with  the 
usages  of  Stock-brokers,  he  was  not  liable  for  the  loss  of  the 
margins  caused  by  the  insolvency  of  his  fellow  Broker. 
The  court  said  :  "  The  law  implies  a  promise  from  Brokers, 
bankers,  or  other  agents  that  they  will  severally  exercise 
competent  skill  and  proper  care  in  the  service  they  under- 
take to  perform;  but  it  neither  implies  nor  requires  more 
than  this."  Accordingly,  where  G.,  a  Stock-broker,  depos- 
ited a  margin  with  B.,  another  Broker,  to  cover  a  short 
sale  made  by  G.,  on  account  of  one  J.,  and  did  not  demand 
security  therefor,  but,  according  to  the  custom  of  Brokers, 
it  was  optional  with  G.  to  do  so,  he  acting  in  good  faith  ; 
and  when  the  deposit  was  made  with  B.,  the  latter  was  in 
full  credit — held,  that  there  was  no  evidence  of  negligence 
such  as  would  make  G.  responsible  for  a  loss  occurring 
through  B.'s  insolvency.^ 

Another  question  arises  as  to  the  transfer  of  the  stock.^ 
A  Broker  is  under  no  obligation  to  have  stocks  purchased 
on  margin  transferred  into  the  name  of  his  Client.'  As  we 
have  shown,^  his  duty  is  fully  j)erformed  if  he  at  all  times 
has  stock  in  hand  to  meet  the  demands  of  the  Client  whether 


'Gheen  vs.  Johnson,  90    Pa.  St.  *  Caswell  vs.  Putnam,  120  N.  Y. 

38.  153;  Brewster  vs.  Van  Liew,  119  111. 

2  Wykoff  vs.  Irvine,  6  Minn.  496;  554,  563;  Harding  vs.  Field,  1  App. 

Sadler    vs.    Lee,    De    Ribeyre    vs.  Div.  391,  393;  Douglas  vs.  Carpen- 

Barclay,  supra.  ter,  45  X.  Y.  Supp.  219,  220,  and 

'  .\s    to    liability    for   "calls"  or  cases  cited, 

"assessments"    upon    stocks,     see  ^  Post,  p.  252. 
post,  p.  265. 


Disposition  and  Safe-keeping  of  Stocks.         240 

or  not  it  is  tlie  particular  shares  purcliased  in  the  execution 
of  the  Client's  order.' 

It  also  follows  from  this,  and  it  is  well  settled  that  the 
Bi-oker  is  entitled  to  have  the  stock  transferred  into  his  own 
name,  or  those  of  his  clerks,  so  tliat  he  may  be  able  to  se- 
cure himself  for  the  amount  of  the  advances  made  by  him. 
In  Horton  vs.  Morgan-  the  court  said  :  "  As  he  [the  Broker] 
was  to  hold  the  shares  as  security  for  the  balance  of  the 
purchase-money,  which  he  had  advanced,  it  was  proper  and 
entirely  consistent  with  the  nature  of  the  transaction  that 
he  should  take  the  title  in  his  own  name ;  .  .  .  and  we  do 
not  see  anything  unlawful  in  his  transferring  it  to  his  clerks 
if  it  remained  under  his  control,  and  if  he  was  ready  when 
called  on  by  the  plaintiff  to  transfer  it  to  him  upon  the  ad- 
vance being  paid.''  ^  Whether  the  Jii-nkcr  has  tiie  riglit  oi- 
authority  to  transfer  the  purchased  stock  into  his  Client's 
name,  is  a  question  which  has  not  directly  arisen.  It  wouUl 
seem  that  he  may  do  so  if  necessary  for  his  own  protection, 
AS  for  instance,  where  a  call  is  to  be  made  upon  stockholdei's 
of  record  and  his  Client's  stock  stands  in  his  name.  I^ut 
where  one  Broker  acting  as  such,  executes  his  Client's  orders 
thrc^ugh  another  Broker,  there  is  no  imjilication  of  authority 
to  the  latter  to  transfer  the  stock  into  the  name  of  the  lirst 
Broker.  In  such  a  case  each  Broker  knows  that  the  other 
is  only  acting  as  a  iiii(l<lli'ii);in  an<l  without  any  intciilioii  of 

'Harding  vs.   Field,  supra,  and  Stoddard,  03  Conn.  198;  21  L.  R.  A. 

Hee  caHes  <-ite<l,  post,  p.  252.  102;   Hiibbell   v.s.   Drexel,    11    Kwl. 

'  19  -N.  Y.  170,  foUowod  in  caacn  Hep.  ll.'i.     The  same  niie  exists  in 

<'ite<l  in  note  4,  j).  244.  the  ea.se  of  a  pied^re,  the  law  Ix-inj? 

'To  same  efTeet,  Genin  vs.  Isaae-  that  the  pledircc  may  transfer  the 

W)H,  0  S .  Y.  I,t(jttl  Ohs. 'Jl'A  21(5;  Hee  weurities      into      his      own      name 

al.H<»  .N'ourse  vs.  Prime,  1  .lohns.  ('h.  fSchonler  on  M.uihn   :Jd  ed.  1S2,  2(X); 

•I'.K);  H.  e.  7  i<l.  i'tU;  .Moruan's  I-><tate.  Tyl<T  on  I'sury,  rA)7). 
1 1   Pa   ('  C.  Hep.  r,:U\   .'.)()   SkifT  VH. 


246  Stock-brokers  and  Stock  Kxchanges. 

himself  becoming  a  stockholder.  And  the  Broker  into 
whose  name  the  stock  has  so  been  transferred  cannot  be 
made  liable  by  the  corporation  or  its  creditors  for  an  unpaid 
assessment  upon  such  stock.' 

There  is  an  intimation  in  Horton  vs.  Morgan  tliat  when 
the  purchase  price  of  the  stock  is  fully  paid  by  the  Client 
and  the  certificates  are  to  be  delivered  to  him,  it  is  the  duty 
of  the  Broker  to  have  same  transferred  into  tlie  Client's 
name,  but  even  in  such  a  case  the  Broker  is  not  bound  to 
procure  a  transfer  of  the  stock  for  the  principal,  where  the 
office  of  the  company  is  removed  from  the  city  where  the 
Broker  lives  and  the  company  is  insolvent.^ 

As  between  Brokers,  fellow-members  of  tlie  Kew  York 
Stock  Exchange,  the  rules  formerly  provided  that, "  in  the  de- 
livery of  stock  the  Receiver  shall  have  the  option  of  re- 
ceiving said  stock  by  certificate  and  power  irrevocable,  in 
the  name  of,  w^itnessed  or  guaranteed  by,  a  member  of  the 
Exchange,  or  a  firm  represented  at  the  Excliange,  resi- 
dent, or  doing  business  in  Xew  York,  or  by  transfer  thereof ; 
but  in  all  cases  where  personal  liability  attaches  to  owner- 
ship, the  seller  shall  have  the  right  to  deliver  stock  by 
transfer.''  The  purpose  of  the  first  part  of  this  rule  was  to 
give  to  the  "  Receiver  "  or  purchaser  the  security  of  the  en- 
dorsement or  guarantee  of  a  member  of  the  Exchange,  the 
selling  Broker  becoming  a  surety  for  the  genuineness  of  the 
signature.  The  last  ])art  of  the  rule  giving  the  seller  the 
right  to  deliver  stock  by  transfer  in  the  case  stated,  simply 
expresses  a  rule  of  law.     Webster  vs.  Upton,  siqjra? 

1  Glenn  vs.  Garth,  133  N.  Y.  18.  S.  65;  cf.  Glenn  vs.  Garth,  supra, 

There  is,  however,  implied  author-  at  p.  39. 

ity  in  the  vendor  of  stocks  to  trans-  '  Horton  vs.  Morgan,  supra, 

fer  the  same  into  the  name  of  his  '  The   rule    as    amended    merely 

vendee.     Webster  vs.  Upton,  91  U.  gives  the  receiver  the  option  of  re- 


Disposition  and  Safe-keep! nj?  of  Stocks.        247 

The  question  as  to  how  far  the  jilcdgor's  right  to  vote  the 
stock  is  affected  by  the  hypothecation,  and  by  the  Broker's 
riorht  to  transfer  it  to  his  own  name,  will  now  be  considered. 
By  the  Revised  Statutes  of  Xew  York  (1  Rev.  Stat.  596, 
ch.  IS,  §  37),  it  was  provided  that  the  pledgor  of  stock  in 
moneyed  corporations  {i.  e.  banking  or  insurance  corpora- 
tions, §  51),  created  after  January  1, 1828,  could  not  vote  upon 
the  stock,  but  this  chapter  was  repealed  by  the  Repealing 
Act  of  1882,  and  the  General  Corporation  Law.  As  to  all 
other  corporations,  except  libraries  and  religious  societies,  it 
was  provided  by  1  Rev.  Stat.  603— i,  §§  6,  8,  that  the  transfer 
books  should  be  conclusive  upon  the  inspectors  of  election, 
but  section  5  conferred  upon  the  Supreme  Court  summary 
powers  to  review  and,  in  a  proper  case,  to  set  aside  an  elec- 
tion. In  an  application  under  this  section^  it  was  held  that 
while  the  stock  remained  in  the  pledgor's  name,  he  was 
entitled  to  vote  the  stock,  and  this  decision  was  followed  in 
Matter  of  Barker,^  in  which  case  it  was  also  held  that, 
although  the  corporation  was  an  insurance  company, 
§37,  of  ch.  IS  of  the  Rev.  Stats.,  supra^  had  no  applica- 
tion, as  the  corporation  was  created  prior  to  January  1, 
1828. 

ceiving   certificates,  or  a  transfer.  Lanpjston,  7  M.  &  W.  517;  London 

Art.  XXV.  sec.  2,  Const.  X.  Y.  Stock  P^ounders'  .Assn.  vs.  Clarke,  L.  R.  20 

Exchaiii^e.     (Jrdiiiarily    the   .selling  Q.  H.  I).  57G.     Whether  he  would  be 

Broker  is  under  no  duty  to  the  oppo-  liable  to  his  own  Client  for  any  call 

sit*  Hroker  or  principal  to  procure  which  such  Client  would  have  to  pay 

registration  or  transfer  of  stock  on  by  rejuson  of  the  Hroker's  failure  to 

books  of  company,  nor  does  the  .sale  transfer  the  .stock  into  the  name  of 

by  him  impf)rt  an  undertaking  that  the  vendee,  wius  suggested  but  not 

the  company  will  make  the  transfer,  decided  in  Neilson  va.  James,  9  L. 

where  it  has  a  discretion  in  the  mat-  R.  Q.  H.  D.  ry\i\. 

tcr.     See  Stray  vs.  Rufwell,  1  Kl.  <t  '  Ivx  parte  Willcocks,  7  Cow.  102, 

E.  88S;  01 7;  Taylor  vs.  Stray,  2  C.  H.  411. 

(n.  8.)  175,  afl'd  id.  l'J7;  Humble  vs.  '  G  Wend.  509. 


248  Stock-bi-okers  aiMl  Stock  Kxclianges. 

In  Matter  of  Cecil '  it  was  held  that  inspectors  of  election 
had  no  power  in  the  case  of  a  non-nioiieyed  corporation  when 
a  stockholder  ^vas  voting  personally  or  by  proxy,  to  require 
an  affidavit  that  the  stock  was  not  ])ledged,  as  a  proceeding 
under  §  5  of  1  Eev.  Stats.  603-4,  sujira,  could  not  be  had 
under  the  act  in  relation  to  moneyed  corporations,  but  it  was 
within  §  5,  supra,  which  applied  to  all  other  coi'porations, 
except  libraries  and  religious  corporations.  This  decision 
did  not  refer  to  the  General  Manufacturing  Act  of  1848, 
eh.  40,  §  17,  of  which  provided  that  the  pledgor  had  the  right 
to  vote  upon  the  stock,  notwitiistanding  the  pledge.  It  was 
held  in  Strong  vs.  Smith'  that,  as  to  a  corporation  organized 
under  that  act,  the  Supreme  Court  had  ])ower  under  §§  5 
and  6,  supra,  to  go  behind  the  transfer  books  of  the  com- 
pany, and  determine  whether  a  transfer  on  the  books  was  a 
sale  or  pledge,  and  in  the  latter  case  to  enable  the  pledgor 
to  vote,  although  the  name  of  the  pledgee  appeared  on  the 
books. 

The  equitable  powers  of  the  Supreme  Court  have  been 
also  invoked  to  restrain,  by  injunction,  the  pledgee  from 
voting  the  stock  when  it  has  been  transferred  to  his  name,^ 
but  the  pledgor  must  show  that  his  rights  will  be  prejudiced.'* 

The  provisions  of  the  Revised  Statutes  referred  to  (1 
Kev.  Stats.  603,  §§  5,  6,  8)  and  the  Act  of  1S4S,  were  re- 
pealed by  the  General  Corporation  Law  (L.  1890,  ch.  563) 
and  have  been  re-enacted,  in  amended  form,  in  the  latter 
law  (as  amended  by  L.  1901,  ch.  355,  §§  20-7).=^    The  effect 


'  36  How.  Pr.  477.  *  S.  c.  90  N.  Y.  58. 

'  1.5  Hun,  222.  *  See  Cumming  &  Gilbert's  Gen. 

'  McHenry    vs.    Jewett,     N.    Y.    Laws,  title  "Corporations." 
Daily  Reg.  October  19,  1881;  aff'd 
26  Hun,  453. 


Disposition  and  Safe-keepiui?  of  Stocks.        249 

of  §  20  of  the  Geueral  Corporation  Law  seems  to  be,  that 
only  the  holder  of  record  is  entitled  to  vote,  but  if  the  stock 
has  been  pledged,  the  pledgor  may  demand  from  the  pledg- 
ee a  proxy  to  vote  upon  the  stock  upon  payment  of  the 
necessary  expenses  thereof.  It  would  seem,  therefore,  that 
in  the  State  of  Xew  York,  the  pledgor  may  vote  the  stock 
whilst  it  remains  in  his  name,  but  the  Stock-broker  may,  if 
he  has  transferred  the  stock  to  himself,  vote  upon  the  stock, 
subject  to  the  summary  power  of  the  Supreme  Court  (untler 
§  27),  and  to  the  general  equitable  powers  of  that  court  to 
set  aside  the  election,  and  also  to  the  right  of  the  pledgor 
to  demand  a  proxy. 

In  Massachusetts  it  is  provided  by  statute  that  a  certificate 
of  stock  issued  as  a  pledge  shall  state  that  fact  in  the  body 
of  the  certificate,  and  it  has  been  held  that  in  such  case  the 
pledgor  may  vote  upon  the  stock,  but  in  other  cases  the  cor- 
poration need  not  accept  the  vote  of  the  pledgor,  although 
the  pledgee  may  be  compelled  in  equity  to  give  a  proxy.* 

The  statutes  of  some  of  the  States  provide  that  the  pledgor 
may  vote  his  stock.^  And  it  may  be  stated  as  a  general 
proposition  that  equity  will  intervene  to  protect  the  right 
of  the  pledgor.^ 


'  Wentworth  Co.  vs.  French,  176  the  books  of  the  corporation,  until 

Mass.  442.  the  pledgor's  rights  shall  have  been 

'See    as    to    Colorado,    National  foreclosed     by    a    sale,     etc.,     the 

Bank   of   Commerce   vs.    .Vlleii,   90  pledgor  and  not  the  pletlgee  Ls  en- 

Fe<l.  Rep.  .545; -Miller  vs.  Murray,  17  titled  to  vote  on  the  stock  in  the 

Col.  40S.     Ah  to  KIkmIc  Island,  see  ab.sence    of    a    statute     providing 

Sayles  vs.  IJrown,  40  Ked.  Hep.  K.  otherwise.     State  ex  rel.   lieeti  vs. 

*  VSTiere     shares     of     Htrnk     are  Smith,  IT)  Ore.  9S;  l.'i  Pac.  Rep.  SSO; 

pledged   as   collateral,   the   pleiJgi-c  .'iO   .\lb.    L.   J.   4SG.     See  also   Mc- 

reserving  the  right  to  s<'ll  in  (■.•tse  of  Henry  vs.  Jewett,  .\.  Y.  Daibj  Itrg. 

default,   and   the   ple<Igee  caijwts  a  Oct.    H),    ISSl ;  afT'd   2ti   Hun,   4'):}; 

tran-sfer  to  hiiiLself  to  be  recorded  on  s.  c.  90  N.  Y.  58. 


250 


Stock-brokers  and  Stock  Exchanges. 


Another  important  ijucstion  should  he  alhided  to  in  this 
connection,  viz.,  as  to  the  use  which  the  P>roker  may  make 
of  securities  held  by  liiiii  on  margin. 

Althougli  in  law  these  securities  are  regarded  as  the 
Client's,  the  Broker's  money  has  i)aid  for  them.  Can  the 
latter,  therefore,  use  the  same  in  his  business?  Can  he 
h^'pothecate  them?  Both  reason  and  the  precedents  herein- 
after alluded  to  seem  to  require  these  questions  to  be 
answered  affirmatively.  In  the  case  of  an  ordinary  pledge 
of  personal  property,  the  general  rule  seems  to  bo,  that  the 


It  is  undisputed,  as  said  by  Judge 
Barrett  in  McHenry  vs.  Jewctt, 
supra,  that  the  corporation  can 
only  look  to  its  transfer  books  in 
determining;  who  is  entitled  to  vote 
(see  cases  cited  In  re  Arjius  Printing 
Co.,  12  L.  R.  A.  781).  The  pledgee 
after  a  transfer  to  him  on  the  books 
has  the  legal  right  to  vote  and  the 
rights  of  the  pledgor  are  then  solely 
in  equity,  and  he  may  in  a  proper 
case  compel  the  pledgee  by  bill  in 
equity,  to  give  him  a  proxy  or  per- 
haps such  a  transfer  of  the  stock  as 
would  allow  him  to  vote  upon  it. 
Scholfield  vs.  Union  Bk.,  2  Cranch 
C.  C.  115;  Vowell  vs.  Thompson,  3 
id.  428;  Hoppin  vs.  Buffum,  9  R.  I. 
513;  In  re  Argus  Printing  Co.,  12  L. 
R.  A.  781,  citing  other  cases  to  same 
effect.  But  equity  will  not  inter- 
fere with  the  result  of  an  election, 
when  the  pledgor  has  slept  on  his 
rights  for  years.  Hoppin  vs.  Buf- 
fum, .supra.  At  common  law  there 
is  no  right  in  a  shareholder  to  vote 
by  proxy,  independently  of  the  con- 
tract between  the  shareholders,  and 
the  form  prescribed  in  the  articles 
of  association  must  be  strictly  com- 


plied with  or  the  proxies  will  be  a 
luillity;  and  in  Harben  vs.  Phillips, 
48  L.  T.  Rep.  334,  they  were  held  to 
be  null,  becau.se  not  "attested  by 
one  or  more  witnesses." 

As  to  rights  of  stockholders  when 
the  right  to  vote  is  given  by  pledgor 
and  pledgee  to  third  parties,  see 
Shelmerdine  vs.  Walsh,  20  Phila. 
Rep.  199.  If  the  pledgee,  however, 
votes,  he  is  not  guilty  of  conversion. 
Heath  vs.  Silverthorn  Lead  Co.,  39 
Wis.  146.  See  also  In  re  St.  Law- 
rence Steamboat  Co.,  44  N.  J.  L 
529,  540;  Allen  vs.  Hill,  IG  Cal.  113; 
Re  Argus  Printing  Co.,  1  N.  D.  434 
McDaniels  vs.  Flower  Co.,  22  Vt 
274;  Ayer  vs.  Seymour,  5  N.  Y 
Supp.  650;  Spreckels  vs.  Nevada 
Bank,  113  Cal.  272;  Schouler  on 
Bailments,  3d  ed.  §  216;  Edwards 
on  Bailments,  3d  ed.  §  219.  But 
see  Com.  vs.  Dalzell,  152  Pa.  St. 
217;  Hinckley  vs.  Pfister,  83  Wis. 
64.  The  pledgor  may  demand  a 
proxy  to  vote  the  stock  if  his  right 
to  do  so  is  protected  by  special  agree- 
ment. Pennsylvania  R.  R.  Co.  vs. 
Pennsylvania  Co.,  54  Atl.  (Pa.) 
783. 


Disposition  and  Safe-keeping  of  Stocks.        251 

pledgee  has  the  right  to  use  the  pledged  property,  unless 
prohibited  either  by  the  nature  of  the  thing  pledged  or  by 
agreement/  the  pledgee  accounting  to  the  pledgor  for  the 
benefits  or  profits  less  the  amount  properly  expended  in  the 
use  of  the  thing.- 

The  authorities,  however,  do  not  all  accord  upon  this  sub- 
ject ;  but  whatever  doubt  there  may  be  in  relation  to  other 
kinds  of  personal  property,  it  seems  to  be  clear  that,  incase 
of  stock  purchased  on  margin  by  a  Stock-broker,  the  latter 
would  have  the  right  to  use  it  in  his  business.  And  this 
follows  from  the  peculiar  nature  of  the  stock,  and  from  the 
circumstances  attendmgan  ordinary  speculative  transaction 
in  the  same. 

In  the  first  place,  a  Stock-broker,  when  he  makes  a  purchase 
of  stocks  on  the  order  of  his  Client,  receives  the  same  di- 
rectly from  the  selling  Brokers  in  the  shape  of  a  certificate 
with  a  blank  assignment  and  irrevocable  power  of  attorney 
authorizing  its  transfer  on  the  books  of  the  particuhir  com- 
pany, and  the  stock  generally  docs  not  pass  through  the 
hands  of  the  Client  at  all.  By  advancing  the  purchase- 
money  for  tlie  stocks,  the  law  gives  the  Broker  a  lien  for  the 
same,  and  establishes  the  relation  of  pledgor  and  pledgee. 

In  the  second  ])lace,  the  money  which  the  Broker  ad- 
vances is  a  part  of  his  capital,  upon  which  he  relies  to  carry 
on  his  business  ;  accordingly,  he  is  comju'lliMJ  to  use  the 
stocks  of  his  Client  to  borrow  money  upon,  which  he  does 
from  banks  or  capitalists,  and  he  is  thus  enabled  to  get 
back  the  whole  or  some  j^art  of  the  money  oi-iginally  in- 
vested, with   which  he  conlitmes  to  transact  his    business. 


'  Schoulor  on   Rmlrrifnlw,  M  «•<!         '  Id. 
I  211 ;  I^-vy  VH.  Lo«b,  xr,  N.  V  :i7(). 


252  Stock-hrokers  aiul  Stock  Exchauses. 

If  it  were  held  that  the  Broker  was  bound  to  keep  on  hand 
the  identical  stock  purchased  lor  a  Client,  and  that  he  could 
make  no  other  use  or  disposition  of  the  same,  it  is  apparent 
that  his  l)usiness  woidd  bo  stopped,  for  no  private  fortune 
would  be  adequate  to  make  many  i>urchases.* 

None  of  the  questions  which  arise  out  of  a  pledge  of  or- 
dinary personal  property,  capable  of  being  handled  and  of 
manual  delivery,  can  ai)ply  to  a  pledge  of  stock.  The  latter 
cannot  be  handled  or  worn  or  used  ;  it  is  nothing  but  an  in- 
corporeal light,  and  the  certificate  merely  represents  the 
interest  which  the  owner  has  in  the  whole  capital — the 
right  to  share  in  the  profits  and  property  when  they  are 
divided. 

Nor  is  this  question  affected  by  the  rule  applied  in  the  case 
of  Langton  vs.  AVaite,*  where  the  plaintiff  borrowed  from 
the  defendants,  who  were  Stock-brokers,  a  certain  sum  of 
money,  and  deposited  with  them  certain  railway  stock, 
which  the  defendants  subsequently  sold,  and,  repurchasing 
the  same  at  a  lower  price,  delivered  the  latter  stock  to  the 
plaintiff  upon  the  payment  of  his  loan. 

In  that  case  it  did  not  appear  that  the  defendants  kept 
on  hand  a  sufficient  or  any  quantity  of  the  stock  of  the 
kind  deposited  with  them  by  the  plaintiff ;  and  the  court, 
in  accordance  with  the  rule  laid  down  in  the  American 
cases  hereafter  referred  to,^  charged  the  defendants  with  the 
price  at  which  they  sold  the  same. 

The   doctrine  may  be   asserted  as    well  settled,  that   a 

'  See  Price  vs.  Cover,  40  Md.  115.  even  to  the  extent  that  the  securi- 

In  Slviff  vs.  Stoddard,  21  L.  R.  A.  ties  might  be  pledged  en  bloc  with 

102,  112,  it  was  held  that  although  those  of  other  customers, 
the  right  to  replcdge  did  not  exist  at        '  6  L.  R.  Eq.  165. 
commo7i  law,  it  was  sanctioned  by        '  Post,  p.  255. 
the  usage  of  the  Stock  Exchange 


Dispositiou  and  Safe-keeping  of  Stocks.        253 

Broker  holding  stocks  for  his  Client  on  margin  for  specula- 
tion is  not  bound  to  keep  on  hand  the  identical  shures  pur- 
chased ;  but  he  answers  all  of  the  duties  of  his  employment, 
by  having  ready  for  delivery  to  his  Client  shares  of  the 
same  description  and  amount.  Shares  of  stock  have  no  ear- 
mark ;  and  one  share  being  of  equal  value  with  every  other 
share  of  the  same  stock,  the  Brokers  are  not  bound  to  de- 
liver, or  to  have  on  hand  for  delivery,  any  particidar  shares, 
or  the  identical  shares  purchased,  for  a  Client. 

This  principle  was  first  laid  down  in  the  State  of  New  York 
in  the  year  1S20  by  Chancellor  Kent,  in  the  well-known  case 
of  Nourse  vs.  Prime.^  In  that  case  the  defendants,  who  were 
Stock- brokers,  had  purchased  various  shares  of  United  States 
bank  stock  for  the  plaintiff,  and  rendered  him  an  account 
thereof,  by  which  it  appeared  that  the  latter  was  indebted  to 
defendants  in  a  large  sum  of  money,  for  which  he  gave  his 
promissory  note,  the  defendants  retainingtheshares as  collat- 
eral security,  and  giving  therefor  to  the  plaintiff  the  following 
receipt :  "  "We  acknowledge  to  hold  430  shares  of  the  stock  of 
the  United  States  Bank  as  collateral  security  forthe  payment 
of  the  said  note,  dated  the  24th  of  December  last,  for  $54,200, 
payable  on  the  10th  of  January  next,  with  interest  at  7  per 
cent,  etc. ;  on  the  payment  of  which  note  and  interest  we 
engage  to  retransfer  the  said  43(J  shares  to  the  said  C.  J.  N. 
or  his  order,  accounting  with  him  for  tiie  dividends  that 
shall  become  payable  on  the  same  ;  and  in  case  the  note 
and  interest  are  not  duly  paid,  we  are  at  liberty  to  make  an 
immediate  sale  of  the  sai<l  shares,  accounting  with  him  for 
any  surplus,  and  liolding  hini  n'sponsibio  for  any  deficiency. 
Dated  New  York,  1  Ith  Feb.,  isls."     rpon  a  bill  in  (Mian- 

'  4  .loliiw,  Cli.  l'.»0,  Hiid  7  id.  09. 


254  Stock-brokers  and  Stock  Exchanges. 

eery  to  restrain  the  defendants  from  proceeding  with  a  suit 
at  coniinoii-law  on  the  note,  and  to  compel  defendants  to 
account  to  the  phiiiititT  for  the  highest  market  price  at  which 
the  defenihuHs  liad  sold  any  I'nited  States  Bank  stock  inter- 
mediately, the  Chancellor  held — treating  the  question  as  an 
original  one,  to  be  decided  upon  general  principles — that,  as 
the  plaintiff  dealt  with  the  defendants  in  their  character  as 
Stock-brokers,  and  the  shares  in  question  w^ere  not  defined 
and  designated  so  as  to  be  distinguishable  from  other  shares 
in  the  same  bank,  under  the  receipt  in  question  the  defend- 
ants had  performed  their  whole  duty  in  the  premises  by 
having  on  hand  or  under  their  control  shares  to  the  amount 
in  question,  wliich  the}'  were  ready,  able,  and  willing  to 
account  to  the  plaintiff  for;  and  that,  in  tlie  absence  of  ex- 
press stipulation,  they  were  not  bound  to  hold  the  identical 
shares  purchased  for  plaintiff  or  referred  to  in  the  I'eceipt. 
Tliis  case  again  came  before  the  court  upon  the  pleadings 
and  })roof,  the  former  opinion  having  been  delivered  by  tlie 
Chancellor  in  dissolving  an  injunction,  and  the  opinion  pre- 
viously given  was  fulh^  endorsed  ;  and  it  was  expressly  de- 
cided that,  considering  the  established  usage  of  Brokers  in 
similar  cases,  there  was  an  implied  authority  from  the  plain- 
tiff to  the  defendants  to  sell  or  pledge  the  stock  to  raise 
money  to  meet  their  advances  in  respect  to  the  transaction 
with  the  ])laintiff,  and  that  the  plaintiff  only  reserved  to 
himself  a  right  to  call  for  a  re  transfer  to  him  of  a  similar 
number  of  shares  on  payment  of  his  note. 

The  case  of  Nourse  vs.  Prime  was  cited  by  the  Supreme 
Court  of  Pennsylvania,  in  the  year  1846,  in  Gilpin  vs. 
Howell,^  and  the  principle  there  laid  down  fully  confirmed. 

'5Pa.  St.  41. 


Disposition  and  Safe-keeping  of  Stocks.        255 

Again,  in  1S50,  the  New  York  Court  of  appeals,  in  Ilorton 
vs.  Morgan,'  said  :  ''The  plaintiff  had  no  interest  in  having 
his  shares  kept  separate  from  the  mass  of  the  defendant's 
stock.  One  share  was  precisely  equal  in  value  to  every 
other  share."- 

The  same  doctrine  Avas  laid  down  in  England  early  in  the 
reign  of  George  the  First  (1722)  b}'  the  Court  of  Chancery, 
in  the  case  of  Le  Croy  vs.  Eastman,^  In  that  case  plaintiff 
bought  £990  of  South  Sea  stock  of  one  Le  G.  ;  but,  not  car- 
ing to  have  this  stock  in  his  own  name,  it  was,  at  his  desire, 
transferred  to  the  defendant,  from  whom  the  plaintiff  took 


'  19  X.  Y.  170.  Supp.  219;  Baker  vs.  Drake,  66  N. 

'  See  also,  confirniins  the  above  Y.  522;  Gruinan     vs.  Smith,  81  N. 

proposition,  Markhaiii  vs.  Jaudon,  Y.  28;  Boyhiii  vs.  Hu;;uet,  S  Xev. 

41  N.  Y.  235;Hortonvs.  Morgan,  19  34.5;  Hvibbell  vs.   Drexel,   11    Fed. 

X.  Y.  170;  Genin  vs.  Isaacson,  6  X.  Rep.  115;  Haj'uard  vs.  Rogers,  62 

Y.  L.5^a/06.v.  213;  Saltus  vs.  Genin,  Cal.    348;    Skiff    vs.    Stoddard.    63 

7  Ab.  Pr.  (X.  Y.)  193;  s.  c.  3  Bosw.  Conu.  198;  21  L.  R.  A.  102,  overrul- 

250;  Stewart  vs.  Drake,  46  X.  Y.  ing  Ingraham  ^•s.  Taylor,  58  Conn. 

449;  Levy  vs.  Loeb,  85  X.  Y.  365,  503;  Rothscliild  vs.  .\llen,  86  X.  Y. 

applying  the   rule   to   goverinnent  S.  42.     See  also  Wynkoop  vs.  Seal, 

bond.s;   Lawrence  vs.   Ma.xwell,   .58  64  Pa.  St.  361 ;  Wood  vs.  Hayes,  81 

Barb.  511;6Lans.  469;53X.Y.  19;  Ma.ss.  375;  Atkins  vs.  Gamble,  42 

Taussig  vs.   Hart,   58   X.   Y.   425;  Cal.  80;  Hawley  vs.  Bruniagini,  33 

Rogers  vs.  Gould,  0  Hun  (X.  Y.),  Cal.  394;  Le  Croy  vs.  Eastman,  10 

229;  Barclay  vs.  Culver,  30  Hun,  1;  Mod.  499;  Mocatta  vs.  Boll,  27  L.  J. 

Thomp.son  vs.  Toland,  48  Cal.  100;  Ch.  237;   Berlin  vs.  Eddy,  .33  .Mo. 

Manston  vs.  Gould,  69  X.  Y.  220,  at  420;  Price  vs.  Gover,  40   Md.  102; 

p.  220;  Chambcrlin  vs.  Greenleaf,  4  Worthington   vs.   Tonney,   34   .Md. 

Ab.  Xew  Ca.s.  CS.  Y.)  178;  Capron  193.     See    also,    upon    this    head, 

vs.  Thompsfjii,  86  X.  Y.  418;  Cas-  Clarke  vs.  .Meigs,  13  Ab.  Pr.  (X.  Y.) 

well  vs.   Putnam,    120   X.   Y.   153;  467;  22  How.  Pr.  (X.  Y.)  340,  rev'g 

Mayo  vs.  Knowlton,  134  X.  Y.  2.50;  12  Ab.  Pr.  207,  and  21  How.  Pr.  187; 

Smith    vs.    .New    York    Stock    and  Also  Taylor  vs.  Kclchum,  .5  Hobert- 

Prfxluce  Clearing  IIou.sc,  25  .\.  Y.  son  (S.  Y.),  507;  s.  c.  3.5  llow.  Pr. 

Supp.  201,  2<'>3.     .\j)i)lying  the  rule  (S.  Y .)  289,  <>\crrul('d  by  the  above 

U)     "diHcretionary  "    tranHacti«)nH.  ciuscw. 

Harding  vs.  I'ield,  1  .\pp.  Div.  391 ;  '  10  .Mod.  199. 
Douglas   v«.   CaqK-Mitcr,    45    .\.    Y. 


'2o^j  IStotk-brokers  and  Stock  Excliaiip:es. 

a  note,  declaring  that  he  was  a  trustee  of  this  stock  for  the 
plaintiff,  and  that  he  woukl  be  accountable  to  him  for  the 
stock  and  produce.  Afterwards,  when  the  stock  sold  at 
about  <!()()  per  cent,  the  plaintiff  desired  that  the  defendant 
would  transfer  the  £'990  of  stoek  to  him  ;  the  defendant  ac- 
cordingly transferred  £500  of  this  stock,  and  informed  the 
plaintiff  that  it  would  be  inconvenient  to  him,  at  that  time, 
to  transfer  more,  but  that  it  was  all  one,  for  he  would  be 
accountable  for  the  stock.  Subsequently  the  stock  fell,  and 
the  plaintiff  brought  a  bill  against  the  defendant,  praying 
that  he  might  account  for  the  £490  stock  at  the  price  the 
stock  was  at  the  time  he  requested  defendant  to  deliver  the 
same — viz.,  at  £600,  insisting  that  the  defendant,  by  agree- 
ing to  be  accountable,  had  assumed  to  pay  at  the  piici;  it 
then  was.  There  was  no  question  of  conversion  in  the  case. 
The  defendant  had,  for  some  time  after  he  became  trustee 
as  above,  £1,000  of  the  stock,  which  he  had  mortgaged,  and 
he  afterwards  sold  all  the  stock  he  had  in  his  own  name, 
except  £80  ;  but  he  had  more  than  stock  enough  in  another 
person's  name  to  have  answered  the  trust,  if  the  plaintiff 
had  insisted  upon  a  transfer,  and  he  offered  to  transfer  the 
£490  stock  and  produce.  Parker,  Lord  Chancellor,  held  that 
it  was  not  material  at  what  the  defendant  sold  the  stock,  for 
the  sale  was  at  his  own  risk.  If  the  stock  had  risen, 
he  would  still  have  been  accountable  for  the  same  ;  and, 
therefore,  as  he  must  have  stood  to  the  loss  in  case  of  the 
rise,  it  was  reasonable  that  he  should  reap  the  advantage  of 
a  fall. 

The  Lord  Chancellor  said  :  "  I  take  it  to  be  very  plain 
that  the  defendant  has  not  sold,  but  mortgaged,  the  trust 
stock.  I^or  since  there  is  no  specificating  £100  South  Sea 
stock  from  another^  .   .   .   therefore    the  stock  mortgaged 


Disposition  and  Safe-keeping  of  Stocks.        257 

must  be  esteemed  the  stock  of  the  plaintiflF,  the  stock 
sold  that  of  the  defendant.  The  defendant  must  only  ac- 
count for  the  stock  and  ])roduce.*" 

So  it  is  within  the  scope  of  the  imphed  authority  of  a 
member  of  a  Stock  Exchange,  when  securities  are  deposited 
with  him  for  the  purpose  of  his  advancing  money  upon 
them,  to  pledge  those  securities  to  some  other  person  for 
that  purpose.^ 

But,  where  a  Client  delivers  a  specified  quantity  of  stock 
to  a  Stock-broker  for  sale,  and  the  Broker  transfers  part  of 
the  same  to  a  third  person,  and  part  to  himself,  the  Client 
can  treat  this  as  a  sale  of  his  stock  ;  and  it  is  no  defence, 
that  it  is  a  custom  among  Brokers  to  place  the  stock  sent 
them  for  sale  to  their  own  names  on  the  books  of  the 
company,  and,  in  making  transfers,  to  do  so  indiscrimi- 
nately, without  regard  to  the  person  from  whom  the  stock 
was  received,  or  for  whose  account  the  same  was  sold.  A 
Broker,  in  such  a  case,  has  no  right  to  pledge  or  do  any- 
thing else  with  the  stock  e.xcept  to  sell  it.^ 

And  the  Broker  must  at  all  times  have  on  hand  stock  suf- 
ficient in  quantity  to  deliver  the  same  to  his  Client  upon 
the  payment  by  the  latter  of  the  amount  due  thereon.  The 
most  he  can  claim  is  that,  so  long  as  he  has  on  hand  shares 
similar  in  kind,  etc.,  to  those  he  has  purchased  for  his 
Client,  he  has  performed  his  contract;  itut  when  hr  de- 
nudes hiiii.self  of  the  (juantity  sufficient  to  answer  his 
Client's  demands,  he  is  guilty  oi  a  conversion,  and  the  latter 
may  assume  that  the  sale  by  which  the  Broker  dispossessed 
him.self    of    the    stock   was    Miadf    U)\-  his  benelit,  and   re- 


'  Mocatta  vs.  liell,  27  L.  J.  C'h.        '  Parsons    vs.  Martin,   77    Maas. 
237.  111. 

17 


258  Stock-brokers  and  Stock  Exchanges. 

cover   the   price  of   the   shares   on   the  day  the  sale  was 
made.' 

The  hmguage  of  the  New  York  Court  of  Appeals,  in  the 
case  of  Taussig  vs.  Hart,'  is  interesting  upon  this  question  : 
"The  subsequent  acquisition,  by  the  plaintifTs  after  the  stock 
had  fallen  to  a  very  low  ligure,  of  a  sufficient  number  of 
shares  to  replace  those  which  they  had  held  for  account  of 
the  defendant,  did  not  relieve  thera  from  liabilit}'.  Such 
re-acquired  stock  was  never  accepted  by  the  defendant,  and 
he  was,  in  fact,  ignorant  of  the  transactions.  To  allow  a 
Broker  to  sell  his  customer's  stock  Avithout  authority,  and 
speculate  upon  it,  replacing  it  at  a  lower  price,  would  be 
encouraging  speculations  by  agents  at  the  risk  of  their  prin- 
cipals, and  is  totally  inadmissible  under  familiar  rules. 
Should  the  stock  rise  largely  in  price,  after  the  Broker  had 
thus  divested  himself  of  all  control  over  the  shares  which 
he  had  purchased  on  the  order  of  his  principal,  the  Broker 
might  be  unable  to  replace  the  shares,  and  the  principal 

'  See,  as  to  this  point,  Langton  vs.  kind    and    amount.     Douglas    vs. 

Waite,  6  L.  R.  Eq.  165,  and  cases  Carpenter,  17  App.  Div.  .329.     See 

cited  supra.     Whether  a  custom  of  this   case   criticized    by    Mr.    Ehot 

the    market    which    authorizes    a  Norton  in  an  article  on  "The  right 

pledgee  in  a  margin  buying  transac-  to  pledge  securities  carried  on  a  mar- 

tion,    temporarily,  to     effect   short  gin,"  in  "The  American  Lawyer," 

sales,  to  reduce  his  carrying  of  any  vol.  5,  p.  573,  in  which  he  says  that 

stock,  below  the  amount  required  to  if  the  decision  is  strictly  followed  by 

meet  the  demands  of  all  his  cus-  Stock-brokers  it  will  be  difficult  for 

tomers,  will  be  sanctioned,  quicrc.  them  to  do  their  business  conven- 

SkifT  vs.  Stoddard,  63  Conn.   198.  iently,  or,  in  some  cases,  not  at  all. 

If  the  Broker   mingles  his   client's  and  recommends   that  the  consent 

securities  with  those  of  other  cus-  of  the  customer  should  be  obtained 

tomers  and  pledges  the  entire  for  an  to  this  method  of  doing  business, 

amount  greater  than  the  indebted-  See  also  Conwell  vs.  Harris,  N.  Y. 

ness  of  his  Client,  he  is  hable  for  con-  L.  J.  March  17,  1897. 
version,  if  he  does  not  keep  in  his       '  58  X.  Y.  425. 
possession  other  securities  of  a  like 


Disposition  and  Safe-keeping  of  Stocks.        259 

would  have  no  remedy  except  a  personal  claim  against  the 
Broker.  This,  clearly,  is  not  what  is  contemplated  under 
an  agreement  to  buy  and  carry  stocks.  The  customer  does 
not  rely  upon  an  engagement  of  the  Broker  to  procure  and 
fm*nish  the  shares  when  required,  but  upon  his  actually  pur- 
chasing and  holding  the  number  of  shares  ordered,  subject 
only  to  the  payment  of  the  purchase  price.'' ^ 

So  it  has  been  held  in  England  that  where  money  was 
borrowed  from  a  Stock-broker  for  a  certain  period,  and 
railway  stocks  deposited  with  him  as  collateral  for  its  repay- 
ment, the  Stock-broker  was  not  justified,  either  in  law  or 
by  the  custom  of  the  Stock  Exchange,  in  parting  with  the 

'  To  same   effect,    Lawrence   vs.  not  be  restored  to  the  owner  upon 

Maxwell,  53  N.  Y.   19,  where  the  payment  of  the  loan,  although  both 

stock  had  been  hj'pothecated.    Here  parties  understood  that  the  Broker 

the    court    said:     "Concediiifi    the  would  have  to  use  the  securities  to 

right  to  use  the  stocks  pledged  by  obtain  the  loan.     So  held  also  in 

way  of  hypothecation  or  otherwise.  Van  Voorhis  vs.  Rea,  153  Pa.  St.  19; 

as  claimed,  and  that  it  was  at  the  Cass   vs.    Higenbotam,    100   X.   Y. 

time  of  the  tender  and  demand  law-  248;  X.  Y.  L.  E.  &  W.  R.  Co.  vs. 

fully  out  of  the  actual  pcssession  of  Davies,    38   Hun,   477;   Muller  vs. 

the  defendant,  it  was  his  duty  at  Legerdre,  47   La.  Ann.   1017.     See 

once  to  regain  the  pos.session  and  also  as  to  right  of  pledgee  to  part 

restore  the  same  to   the   plaintiff,  with  stock,  under  a  \NTittcn  in.stru- 

.  .   .  It  Is  immaterial  whether  the  ment  conferring  general  authority  to 

stock  was  hypothecated  by  the  de-  iLse,  etc.,  Ogden  vs.  Lathrnp,  G5  .\. 

fendant  upon  a  loan  of  money  for  Y.  158.    See  also,  in  same  connection, 

the  benefit  of  the  plaintifT's  transac-  Dykers  vs.   Allen,   3   Hill   (X.   Y.), 

tions    or    for    his    own    purposes."  .503,  afT'd  by  Court  of  Errors,  7  id. 

The  doctrine  of  Lawrence  vs.  Max-  497.     liut    parol    evidence    in    the 

well,  53  X.  Y.  19,  is  followed  by  the  case  of  a  pledge  of  stock,  that  the 

United  States  Circuit  Court  in  Ore-  pledgee  may  use  the  same,  is  not 

gon  <fe  Transcontinental  Co.  vs.  Hil-  admissible,  where  a  written  iiistni- 

mers,  20   Fed.   Rep.  717,   where  it  ment  luis  been  given  l)y  the  pledgee, 

was  held    that  when   the  owner  of  in  whiili  ho  staten  that  he  holds  it  jw 

Hccurities  pledges  them  to  a  SU>ck-  collateral  WM-urity,  and  may  sell  "on 

broker  as  collateral  to  a  loan,  the  one  day's  notice."     Fay  vs.  Gray, 

latter  ha.s  no  right  to  nhypotherute  124  Moss.  500. 
ihr-iii  ill  such  a  w;iv  that  thcv  ciin- 


260  Stock-brokers  and  Stock  Exchauges. 

security  during  the  pendency  of  the  loan,  but  was  bound 
to  return  the  identical  stock  pledged ;  and  that  the  person 
to  whom  the  loan  was  made  was  entitled  to  recover  from 
the  Broker  the  amount  of  profits  realized  by  the  dealings 
in  his  stocks  by  the  latter.'  The  court  said  that  "  in  the 
absence  of  express  contract,  the  pawnee  of  property  can- 
not sell  it  until  the  debt  for  which  it  is  pledged  be- 
comes payable  ;  and  if  he  does  so,  the  owner  has  the 
right  to  charge  the  pawnee  with  the  price  he  gets  for  the 
property  if  he  finds  it  to  his  interest  to  do  so."  The 
court  also,  while  finding  that  there  was,  in  fact,  no  custom 
of  the  Stock  Exchange  which  varied  the  rule  above  laid 
down,  declared  that  such  a  custom  would  be  manifestly 
unjust ;  the  borrower  would  be  completely  at  the  mercy  of 
the  lender,  who  might  convert  the  security  and  appropriate 
the  proceeds  to  his  own  use,  and  at  the  expiration  of  the 
period  of  the  loan  be  wholly  unable  to  return  to  the  bor- 
rower what  belonged  to  him.^ 

But  the  owner  of  stocks  pledged  as  collateral  for  the 
repayment  of  borrowed  money  may  deprive  himself  of 
any  remedy  b}'  dealing  with  the  property  when  retransferred 
to  him  ^  on  repayment  of  the  loan. 

As  incident  to  the  Broker's  rights  in  stock  carried  on 


'  Langton  vs.  Waite,  L.  R.  6  Eq.  after  the  sale  the  property  should  be 

165.  returned  to  the  pledgee  to  be  re- 

^  See  also  Ex  parte  Phillips,  Ex  deemed  by  the  purchaser.     Stief  vs. 

parte  Marnham,  30  L.  J.  Bk.  1;  2  Hart,  1   X.  Y.  20.     As  to  general 

De  G.  F.  &  J.  634;  Phen6  vs.  Gillan,  duties  of  pledgee  when  promissory 

5  Hare,  1;  Allen  vs.  Dubois,  75  X.  notes  and  stocks    are    pledged   a.s 

W.  443;    1   Story's   Eq.    Jur.   714,  collateral  security,  see    article,    17 

note  1.     A  sheriff  having  an  execu-  Western  Jurist,  Jan.  1883,  p.  1. 

tion  again.st  the  pledgor  may  take  ^  See  Langton  vs.  Waite,  L.  R.  4 

the  property  from  the  pledgee  and  Ch.  App.  402. 
sell  the  .same  on  such  execution,  but 


Disposition  and  Safe-keepina;  of  Stocks.        261 

margin  there  would  seem  to  be  no  good  reason  in  law 
why  he  should  not  have  the  right — possessing  as  he  does  the 
power  to  dispose  of  the  securities — to  maintain  an  action 
for  their  recovery  against  any  person  wrongfully  holding 
the  same,  notwithstanding  the  technical  ownership  of  them 
is  in  his  Clients. 

But  the  rule  that  the  Broker  is  not  bound  to  keep  on 
hand  the  identical  stock  or  bonds  purchased  only  applies  in 
the  absence  of  agreement.  "Where  the  parties  agree  that 
the  original  bonds  shall  be  carried,  the  Broker  must  keep 
them  on  hand  in  the  identical  shape  in  which  they  were 
purchased.  And  where  the  Broker  sells  or  disposes  of  the 
bonds  in  breach  of  such  an  agreement,  he  cannot  recover 
from  his  Clients  any  loss  arising  upon  a  sale  of  other 
bonds  substituted  for  the  original,  although  the  Broker 
shows  that  he  had  constantly  on  hand  during  the  relation 
other  bonds  sufficient  to  meet  the  demands  of  his  Clients.' 
Before  a  Broker  can  recover  in  such  a  case,  he  must  show 
that  he  has  performed  substantially  all  the  conditions  prec- 
edent which  are  embraced  in  the  contract.^ 

These  questions  arose  in  the  case  of  Levy  vs.  Loeb.^ 
There  the  defendants,  bankers  and  Brokers,  bought  for  ac- 
count of  the  plaintiff  certain  bonds  of  the  United  States 
upon  an  agreement  that  the  defendants  were  to  advance 
the  purchase  price  in  the  form  of  a  loan,  u})on  which  interest 
at  the  rate  of  four  ])er  cent  was  to  bo  allowed,  the  bonds 
meanwhile  being  held  as  collateral  to  the  loan,  but  to  be 
carried  by  the  defendants,  for  plaintiff's  account.  The 
bonds  were  accordingly  purchased   In'  the  defendants,  but 

'  Levy  VH.  Loeb,  85  N.  Y.  .'iO/S.        tion,   Hardy    vs.  Juudoii,   1    Hobt. 
»Id.  •201,afT'd21  N   Y.OlO 

*  Supra.     See  alao,  in  th'w  conncf- 


262  Stock-brokers  and  Stock  Kxehan^es. 

■were  charged  to  the  plaintiff  at  a  higher  price  than  the 
amount  ])aid  for  them,  and  other  improper  items  were  also 
inchidod  in  the  price.  Phdntiff  made  a  payment  on  ac- 
count of  these  purchases  of  over  $10,000,  in  consideration  of 
which  defendants  agreed  to  carry  the  bonds  })urchased  for 
a  certain  period,  which  was  afterwards  extended.  Before 
the  maturity  of  the  loan,  and  while  tlie  contract  to  carry 
was  in  force,  the  defendants  for  their  own  account,  without 
the  knowledge  and  consent  of  the  phiintilf,  sold  the  whole 
lot  of  original  bonds.  At  the  maturity  of  the  loan  the 
plaintiff  was  called  upon  to  pay  the  alleged  indebtedness,  or 
be  sold  out — the  amount  demanded  including  the  excess 
charged  over  the  actual  cost.  Upon  refusing,  the  de- 
fendants sold  other  and  substituted  bonds,  and  this  "  vicari- 
ous "  sale  demonstrated  a  large  deficiency  ;  whereupon  the 
plaintiff  brought  an  action  to  repudiate  the  alleged  pur- 
chase and  to  recover  the  money  paid  upon  it.  The  de- 
fendants set  up  a  counterclaim  for  the  deficiency.  The 
Special  Term  disalloweil  the  counterclaim  and  directed 
judgment  for  plaintiff  for  $713.77,  the  amount  of  the 
illegal  charges  made  by  defendants.  Plaintiffs  appealed 
from  that  portion  of  the  judgment  which  disallowed  them 
the  $10,000  paid  by  them.  Defendants  a})pealed  from 
that  portion  of  the  judgment  which  disallowed  their 
counterclaim.  In  the  Court  of  Appeals,  on  the  hearing  of 
defendants'  appeal,  the  counterclaim  of  defendants  was  re- 
jected upon  the  grounds  before  stated.  This  case  came  be- 
fore the  Court  of  Appeals  for  a  second  time  on  plaintiff's 
appeal  and  the  principles  first  laid  down  were  reiterated, 
and  the  plaintiff  was  further  held  to  be  entitled  to  recover 
back  the  money  paid  by  plaintiff  in  consideration  that 
defendant's    bankers    would   carry   the   bonds    for    plain- 


Disposition  and  Safe-lteepins^  of  Stocks.        203 

tiff,  for  a  limited  time,  and  which  the  defendants  failed  to 
do.^  It  does  not  appear  from  the  reports  whether  de- 
fendants on  the  first  sale  of  the  bonds  (i.  e.,  that  before  the 
time  limited  for  carrying  them  had  been  reached)  sold  them 
at  a  profit  or  a  loss.  But  even  if  they  had  sold  them  at  a 
loss,  it  is  difficult  to  see  how  they  could  have  recovered 
such  loss,  or  that  the  plaintiffs  would  not  be  entitled  to  re- 
pudiate the  contract.  The  court  (pev  Miller,  J.),  on  the 
hearing  of  the  second  aj^peal,  said  :  "■  Looldng  at  the  trans- 
action in  the  light  most  favorable  for  defendants,  they 
stood  in  the  position  of  vendors.  "Where  the  vendor  of 
property,  who  has  received  a  portion  of  the  ])urchase-price, 
on  agreement  to  hold  and  deliver  the  property  to  the  ven- 
dee on  payment  of  the  balance,  without  notice  to  the  ven- 
dee disposes  of  the  same,  he  may  be  treated  as  wrongly 
rescinding  the  contract  on  his  part,  and  the  vendee  may 
maintain  an  action  to  recover  the  money  paid  in  part  per- 
formance of  such  contract."  The  court  also  distinguished 
the  case  from  Capron  vs.  Thom])S(jii,-  and  Gruman  vs. 
Smith,^  wherein  it  was  held  that  the  unauthorized  sale  by  a 
Broker  of  stock  purchased  and  carried  on  a  margin  was  not 
a  breach  of  a  condition  preceilent  which  prevented  the 
Broker  from  charging  for  the  money  paid  by  him  for 
stock,  although  he  was  liable  in  damages  for  the  unau- 
thorized sale.  In  the  case  under  review  there  was  a 
breach  of  a  condition  precedent,  viz.,  an  iigrcenient  to  carry 
the  bonds  for  a  stipulated  time,  ami  the  failure  of  de- 
fendants so  to  do  operated  as  a  rescission  of  the  contract, 
rendering  them  liaijle   to  refund   the  money  paid   Ijy  phiin 


»  Ixivy  VH.  Ix>cb,  89  N.  Y.  386.  '81  .N.  Y.  25. 

'80  N.  Y.  418. 


264  Stock-brokers  ami  Stock  Kxcliaii^cs. 

tiffs.  And  if  there  be  two  different  kinds  of  stock  of  the 
corporation,  u  {)k'dgee  must  restore  the  same  kind  originally 
pledged  with  him.  Accordingly,  a  pledge  of  lifty  shares 
of  "  consolidated  "  Erie  stock,  cannot  be  restored  or  made 
good  to  the  pledgor  by  assigning  to  liim  the  same  number 
of  shares  of  "  converted  "  stock.  The  pledgees  are  at  least 
bound  to  restore  stock  of  the  identical  kind  pledged.' 

The  Broker  need  not  keep  the  property  of  his  principal 
unmixed  with  his  own  or  the  property  of  other  principals. 
But  where  such  intermingling  takes  place  and  dispute 
arises,  the  Client  is  entitled  to  the  most  favorable  pre- 
sumption that  can  be  drawn  from  the  evidence.^ 

(d.)     Dividends,  Profits,  Assessments,    Calls,  Literest. 

As  a  consequence  of  the  declaration  of  the  law  that  the 
stock  as  soon  as  it  is  purchased  becomes  the  property  of  the 
Client,^  it  follows  that  all  of  the  benefits  in  the  way  of  ac- 

'  Wilson  vs.  Little,  2  N.  Y.  443,  certificate  and  was  its  exact  equal  in 

449.     The  pledgee   meets  this   re-  value.     Donnell  v.s.  Wyckoff,  49  N. 

quirement  if  he  restores  stock  in  the  J.  L.  48. 

same  company,  equivalent  in  value  ^  Hardinc;  vs.  Field,  1  App.  Div. 

to     and     representing     the     stock  391;  Bate  vs.  McDowell,  17  J.  &  S. 

pledged.     Thus    where   a   corpora-  106;  Gray  vs.  Haig,  20  Beav.  219. 

tion,  by  legislative  authority  and  '  Gruman  vs.  Smith,  81  N.  Y.  25; 

for  the  purpose  of  re-organization,  rev'g  12  J.  ife  S.  389,  and  cases  cited, 

reduced    its    capital   stock   and   so  ante,  p.  192.     The  legal  title  to  the 

proportionally  reduced  the  nominal  stock  pledged  remains  in  the  pledg- 

value  of  each  share,  it  was  held  that  or,  the  pledgee  having  the  right  to 

the  surrender  by  the  pledgee  of  the  retain  them  until  the  debt  is  dis- 

pledged  certificate  of  old  stock  and  charged,  and  while  so  holding  them 

the  acceptance  of  a  certificate  for  he  cannot  claim  adverse!}'  and  thus 

the  same  number  of  shares  of  the  obtain  a  title  under  the  statute  of 

new  stock  was  not    a  conversion.  limitations.     Cross  vs.  Eureka  Lake 

The  new  certificate  represented  the  Canal  Co.,  73  Cal.  302.     See  atso 

same    proportional    share    in    the  Boyd   vs.   Conshohocken   Mills,    24 

company's  assets  as  did  the  pledged  Atl.  Rep.  287. 


Dividends,  Assessments,  Calls.  265 

cretions,  interest,  dividends,  or  profits  which  result  there- 
from belong  to  the  latter.' 

Under  this  rule,  all  profits  or  benefits  of  any  description 
which  the  Stock-broker  may  derive  from  the  loan  or  use  of 
his  Client's  securities  would,  in  the  absence  of  agreement, 
belong  to  the  latter. 

But  the  Broker  as  pledgee  of  securities  has  the  right  to 
collect  the  dividends  or  interest  thereon,^  it  being  reasoned 
that  any  increase  of  the  pledged  property  is  likewise  pledged.^ 

The  securities  also  are  in  his  possession  and  he  has,  as  we 
have  seen,^  a  right  to  have  them  transferred  into  his  name 
upon  the  books  of  the  company. 

He  has.  however,  no  right  to  apply  the  proceeds  of  the 
pledged  property  to  the  re-payment  of  his  advances,  until 
after  default  in  its  payment.* 

If,  therefore,  a  pledgor  of  stock  receives  the  dividends 
from  the  company,  an  action  lies  by  the  pledgee  against 
him  to  recover  the  same.^  And  in  the  case  of  the  Andros- 
coggin Railroad  Company  vs.  Auburn  Bank 'the  court  held 
that  where  a  bond  with  interest  coupons  attached  was  the 
subject  of  the  pledge,  there  was  an  implied  authority  in 
the  pledgee  to  collect  the  interest  thereon. 

On  the  other  hand,  the  Client  is  subjected  to  all  of  the 

'  Markham  vs.  Jaudon,  41  X.  Y.  'Gates  vs.  Halliilay,  supra;  An- 

23.");  Hrifit^s  vs.  Keunett,  28  X.  Y.  droscoKnin  Kailroaci  Co.  vs.  .Vuburn 

Supp.  740;  see  also  Gates  vs.  Halli-  Hank,   4S   Me.    '.V.i't;    Hiusbrook   vs. 

day  (^Mo.  Ct.  of  App.),  1  Am.  Law  Vandcrvoort,  4  Sand.  74. 

Review  (n.  b.),  172,  aa  to  ri^ht  of  '  Ilerrmaii  vs.  .Maxwell,  47  X.  Y. 

ple<iKec  to  receive  dividends.     See  Super.  Ct.  347. 

further  as  to   dividends,  post,  Ch.  'Ante,  p.  245. 

IV.     The   same    rule    is  appKu-ahle  '  Farwell      vs.     Importer's,    etc., 

to  a  pledKe— viz.,  that  all  the  prof-  Nut.  lik.,  90  X.  Y.  4S3. 

its,    eU'.,    beloHK    to    the    pledgor  •  Gates  vs.  Hidli<lay,  supra. 

(Schouler  on  Hailm   3<1  ed.  (  212).  '  Supra. 


266  Stock-brokers  and  Stock  Exchanges. 

responsibilities  of  pure  and  absolute  ownership;  and  he  is 
liable,  and  not  the  JJroker,  for  all  assessments  or  calls  of  any 
kind  made  upon  the  stock  while  he  is  the  owner  thereof, 
although  the  Broker  may  have  paid  them,  in  the  first  in- 
stance, by  reason  of  the  stock  being  transferred  on  the  books 
into  his  own  name,  in  accordance  with  the  usages  of  the 
business.*  The  general  rule  being  that  a  pledgee  of  stock 
who  has  transferred  the  same  on  the  books  of  the  company 
is  subject  to  all  of  the  liabilities  of  a  stockholder,^  except 
where  statutes  have  provided,  as  in  New  York,  §  16  of  the 
General  Manufacturing  Act  (184S),  of  which  State  provides 
that  no  person  holding  stock  as  executor,  administrator, 
guardian,  or  trustee,  or  as  collateral  security,  shall  be  per- 
sonally subject  to  any  liability  as  stockholder  of  such  com- 
pany.^ In  Eobins  vs.  Edwards,^  where  it  appeared  that  a 
Broker,  at  the  request  of  his  principal,  continued  shares  in 
his  own  name,  the  Master  of  the  Rolls  ordered  the  prin- 
cipal to  repay  to  his  Broker  a  call  which  he  had  paid,  and 
to  procure,  as  far  as  possible,  that  the  shares  should  be  reg- 
istered in  his  own  name.^ 

Another  element  of  the  transaction  should  be  here  noticed. 
The  selling  Broker  is  bound  to  deliver,  upon  receiving  from 

'  McCalla  vs.  Clark,  55  Ga.  53;  with  the  additional  provision  that  if 
Marshall  vs.  Levy,  66  Cal.  2.36;  the  executor,  administrator,  guard- 
Whitney  vs.  Page,  1  How.  Pr.  (n.  s.)  ian  or  trustee  voluntarily  invested 
389.  the  trust  funds  in  such  stocks  he 

*  National  Bank  vs.  Case,  99  U.  S.  shall  be  personally  liable  as  a  stock- 

628;  Pullman  vs.  Upton,  96  id.  328;  holder. 

^\^leelock  vs.  Kost,  77  111.  296;  In  re  *  15  W.  R.  1065. 

Empire  City  Bank,  18  X.  Y.  199;  ^  To  same  effect,  Taylor  vs.  Stray, 

Holyoke  vs.  Burham,  11  Cush.  183.  2  C.   B.   (n.  s.)   175;  Chapman  vs. 

'This  act  was    repealed  by  the  Shepard,  L.  R.  2  C.  P.  228;  White- 
General  Corporation  Law,  and  its  head  vs.  Izod,  id.;  Emmerson's  case, 
provisions  have  been  re-enacted  in  L.  R.  1  Ch.  App.  433. 
§  54  of  the  Stock  Corporation  Law, 


Dividends,  Assessments,  Calls.  267 

the  purchasing  Broker  the  jirice  agreed  upon,  a  certificate 
of  stock  (il  stock  be  the  subject  of  the  sale)  for  the  number 
of  shares  purchased.  This  certificate  must  be  in  every  re- 
spect proper  and  legal.  It  must  be  issued  by  the  company, 
or  its  authorized  officers  or  agents,  and  must  show,  on  its 
face,  that  the  person  therein  mentioned  is  entitled  to  so 
many  shares  in  the  capital  stock  of  the  corporation.  Usually 
certificates  of  stock  have  forms  of  assignment  endorsed  on 
them,  together  with  irrevocable  powers  of  attorney,  au- 
thorizing the  officers  of  the  corporation  to  transfer  upon 
the  books  of  the  company  the  number  of  shares  represented 
in  the  certificate  to  the  person  therein  named.  It  is  the 
duty  of  the  selling  Broker  to  procure  this  assignment  to  be 
duly  executed  by  the  person  named  in  this  certificate,  as 
the  sale  would  not  be  complete  without  it,  although  there 
might  arise  a  case  where  this  rule  would  not  prevail.^ 

Upon  the  point  as  to  what  a  Broker  of  a  vendor  sells  on 
the  Stock  Exchange,  the  remarks  of  Lord  Campbell,  C.  J., 
in  Stray  vs.  Kussell  ^  are  pertinent :  "  According  to  these 
usages,  the  price  of  the  shares  is  payable  on  the  one  Broker 
handing  over  to  the  other  the  transfers  and  certificates. 
What  does  the  vendor  rontract  to  sell  and  deliver  ?     Genuine 

'  See  as  to  duty  of  .selling  liro-  broker  had  sold  upon  the  order  of  A 

ker,   on   London  Stock   Exchange,  to  plaintilTs,  railway  debentures  be- 

Ch.  X.  longing  to  A,  B,  and  C,  A  having 

M  El.  &  E.  888,  at  p.  000.  Where  forged  the  signatures  of  B  and  C  to 
a  Xote-l)rokor  sold  a  note  to  an-  tlie  transfer,  the  plaintilTs  were  en- 
other  Note-broker  without  knowl-  titled  to  recover  the  sums  paid  l)v 
edge  of  the  latter  that  it  w;ls  wortli-  them  for  the  delientures  witli  iutcr- 
less,  and  he  is  rompelled  to  lake  it  est,  they  having  been  compelled  by 
back  from  his  princip.al,  the  buying  suit  in  equity  to  restore  the  debeii- 
Broker  is  entitlrjd  to  recover  the  tures  and  interest  to  B  and  C.  Hoyal 
amount  paid  to  the  selling  Broker  Ex.  Assn.  Co.  vs.  Moore,  8  L.  T.  N.. 
therefor.  Stewart  vs.  C)rvis,  17  S.  212. 
How.  Pr.  ijlS.     -And  where  a  Stock- 


208  Stock-brokers  and  Stock  Exchanges. 

traiiftfers  and  certijicates,  u^ith  the  interest  and  rights  which 
they  convey.  There  might  be  a  coiulition  subsequent,  im- 
posing u[)t)n  the  vendor  the  onus  ol"  procuring  the  consent. 
of  the  directors  to  the  transfer,  but  I  lind  no  evidence  of 
such  a  condition."  *  And  the  point  was  directly  passed 
upon  in  the  hist-named  case,^  that  the  selling  I'roker  is  not 
bound  to  procure  a  transfer  or  registration  on  the  books  of 
the  company. 

In  practice,  generally,  this  assignment  is  executed  in  blank 
by  the  person  in  whose  name  the  shares  stand  on  the  books 
of  the  company,  leaving  tiie  purchaser  to  fill  in  any  name 
and  to  effect  the  transfer  u})on  the  books,  if  he  so  desire  it. 

Frequently,  however,  a  certificate  of  stock,  with  the 
power  of  attorney  executed  in  blank  attached  tiiereto,  is 
passed  from  hand  to  hand,  and  is  used  in  several  different 
transactions  before  there  is  an  actual  transfer  of  the  shares 
on  the  books  of  the  company.  But,  by  executing  the  cer- 
tificate to  the  purchaser  as  between  the  latter  and  the 
seller,  the  purchaser  becomes  the  owner  of  the  shares.^  Al- 
thouo-h,  until  the  same  is  transferred  on  the  books  of  the 
company,  the  seller  is  liable  for  any  "calls''  or  assess- 
ments.^ So  a  person  is  liable  to  the  company  for  the 
amount  of  his  subscription,  although  after  calls  were  made, 

'  See  also,  to  same  effect,  Taylor  the  charter  does  not  require  entry 

vs.  Stray,  2  C.  B.  (n.  s.)  175;  aff'd  hi  on  the  books,  the  corporation  may 

Exch.  Chamber,  id.  197.  recognize  a  purchaser  as  a  .stock- 

'  Supra.  holder  in  such  a  way  as  to  preclude 

'  Lindley  on  Company  Law  (5th  it  from  demandinc;  assessments  or 

ed.),  505  et    seq;    Sliellington    vs.  calls  from  the  seller,  as  l)y  pa.\'iiig 

Rowland,  53  N.  Y.  372.  the    dividends    to    the    purchaser. 

*Id.;   Magruder   vs.   Colston,   44  Cutting  vs.  Damarel,  88  X.  Y.  410. 

Md.  349;  Johnson  vs.  Underbill,  52  See  also  Loring  vs.  Davis,    32  Ch. 

N.  Y.  203.     Yet  where  there  has  Div.  625. 
been  no  transfer  on  the  books,  and 


Dividends,  Assessiiieuts,  Calls.  269 

and  before  they  were  payable,  he  assigned  his  stock  to  a 
responsible  party.'  And  if  the  purchaser  does  not  pro- 
cure the  transfer  upon  the  books  of  the  company,  and,  in 
consequence,  the  seller  is  made  liable  for  assessments  or 
calls,  the  purchaser  is  bound  to  indemnify  the  seller  in  re- 
spect thereto,  and  from  all  liability  accruing  to  the  shares 
since  the  time  they  were  sold.-  On  the  other  hand,  the 
purchaser  can  compel  the  seller  to  execute  a  proper 
transfer,  and  to  account  for  all  dividends  received  by 
him  since  he  ceased  to  be  the  equitable  owner  of  the 
shares.^ 

In  the  United  States  this  question  of  transferring  stock 
upon  the  books  of  the  company  has  not  received  the  atten- 
tion which  it  has  in  England,  because  in  the  latter  country, 
where  most  commercial  corporations  are  organized  by  the 
payment  of  only  a  limited  amount  of  the  fixed  caj)ital,  calls 
can  be,  and  are  generally,  made  upon  the  stockhohlers  of 
record,  and  if  the  registration  of  the  shares  is  not  attended 
to,  the  shareholder  of  record  may  be  compelled  to  j)ay  the 
same,  although  he  may  have  long  since  parted  with  his 
stock.  The  rule  is  the  same  in  this  respect  in  the  United 
States.*      But  with  us,  corporations  have  either  paid  up 

'  Schenectady     R.     R.    Co.    vs.  R.  6  Q.  B.  323;  Ncilsoii  vs.  James,  0 

Thatcher,  11  N.  Y.  102.  Q.  B.  D.  553. 

'  1  Lindloy  on  Company  Law  (5th  '  1    Lindley    on    Company    Law 

ed.),  492,  505.     If  a  Broker  is  the  490.     To     constitute   a    person     a 

purch{t.ser  and  lie  does  n<jt  disclose  stockholder   and    a.s  such  liable   to 

his  principal,  tlic  former  is,  inider  creditors  of  the  corporation,  it  is  not 

the  i;<^:neral  law  of  agency,  hound  to  neces.sarytliat  a  certificate  should  ho 

indemnify    the    seller    acain.st    the  i.ssued  to  him,  or  payments  made  by 

payment     of     calls.     Lichten     vs.  him.     A  subscription  for  stock  and 

V'enier,  8  Pa.  Dist.  Rep.  21S.     .\h  arecofinilioii  of  liiml)y  thecomiiany 

U}  the  effect  of  tlie  company's  in-  a-s     a     stockholder     are     suflicient. 

solvency,  see  ("rabb  vs   .Milh-r,  21  I,  \Vh«'elor   vs.   .Miller,  90   N.   V.  353. 

T.  219;  liowrinK  vs.   Shepherd,  L.  '  Sliellin^^ton  vs.  I  lowland,  supra. 


270  Stock-brokers  aud  Stock  Exchauges. 

their  capital  in  cash,  or  its  equivalent,  pursuant  to  statutory 
enactment,  and  the  stockholders  are  not  generally  liable 
for  future  calls.  But  the  increasing  number  of  corpora- 
tions, and  the  frequent  evasions  of  the  requirements  of  the 
statutes  authorizing  the  issuance  of  the  entire  capital  for 
property  by  placing  a  fraudulently  extravagant  value 
thereon,  may,  and  doubtless  will,  render  the  question  of 
calls  or  assessments,  and  the  necessity  of  seeing  that  a 
transfer  or  registration  is  made  upon  the  books  of  the  com- 
pany when  a  sale  is  made,  as  important  and  essential  as  it 
is  in  England.^ 

In  respect  to  the  liability  of  the  Client  to  pay  interest,  it 
is  a  well-understood  rule  of  Stock-brokers  to  charge  him 
legal  interest  upon  the  amount  advanced  by  the  Broker 
in  the  purchase  of  the  stock  ;  it  is  also  the  usage  of  the 
Brokers  to  charge  the  Client  with  an  extra  interest  which 
the  Broker  is  compelled  to  pay  for  carrying  the  stocks  of 
the  former  caused  by  a  stringency  of  the  money  market. 


*  For  the  subject  of  the  liability  full  value  for  the  shares  as  paid  up, 

for  calls  in  England,  see  post,  Ch.  X.  he  is  not  liable  to  the  creditors  of 

Where  shares  in  a  bridge  compan}'  the  corporation  under  the  statute 

were    issued     as    paid-up    shares,  for  the  amount  actually  unpaid  on 

which  were  not  fully  paid  up,  the  the    shares.     In    order    that    the 

transaction,  though  a  fraud  in  law  shares  should  be  regarded  as  paid- 

upon  the  creditors  of  the  company,  up  shares  in  the  hands  of  an  inno- 

was  made  apparently  in  good  faith  cent  purchaser,   it  is  enough  that 

by  the  company,   and  on  its  face  they  were  in  the  usual  form;  it  is  not 

was  formal  and  regular,  the  shares  necessary  that  they  should  express 

appearing  on  the  books  as  paid,  and  upon  their  face  that  thej-  were  fiilly 

nothing  appearing  to  apprise  a  pur-  paid.     Keystone  Bridge  Co.  vs.  Mc- 

chaser  that  such  was  not  the  fact;  a  Cluney,  Mo.  Ct.  of  App.,  decided 

purchaser  to  whom  the  shares  had  March  30,  1880;  1  Am.  L.  Rev.  395. 

been  transferred  -without  notice  was  As  to  when  a  transferee  is  liable  un- 

not  required  to  suspect  fraud  or  in-  der  an  implied  promise  to  pay  call, 

stitute  inquiries  where  all  seemed  to  see  Sigua  Iron  Co.  vs.  Brown,  171 

be  lawful  and  regular;  and  if  he  paid  N.  Y.  488. 


Dividends,  Assessmeuts,  Calls.  271 

Both  of  these  usages  are  reasonable,  and  it  does  not  seem 
to  be  diificult  to  sustain  tlieni  by  authorities. 

Thus  it  has  been  held  that  an  agreement  for  interest  may 
be  inferred  from  the  course  of  dealing  between  the  parties  ; 
as  where  interest  has  before  been  charged  and  allowed 
under  the  like  circumstances.'  Also,  when  the  creditor 
has  a  uniform  practice  of  charging  interest,  which  was 
known  to  the  debtor  at  the  time  of  the  dealing.  And 
where  there  is  a  general  usage  in  any  particular  trade  or 
branch  of  business  to  charge  and  allow  interest,  parties  hav- 
ing knowledge  of  the  usage  are  presumed  to  contract  in 
reference  to  it ;  and  if  the  usage  does  not  conflict  with  the 
terras  of  the  contract,  it  will  be  deemed  to  enter  into  and 
constitute  a  part  of  it.  Knowledge  of  the  usage  may  be 
established  by  presum})tive  as  well  as  by  direct  evidence. 
It  ma}'  be  presumed  from  the  fact  that  both  parties  are  en- 
gaged in  the  particular  trade  or  branch  of  business  to 
which  the  usage  relates,  and  also  from  other  facts,  as  the 
uniformity,  long  continuance,  and  notoriety  of  the  usage.^ 

In  the  case  of  Robinson  vs.  Norris^  the  question  of  the 
liability  of  a  Client  to  pay  interest  which  the  Broker  had 
been  compelled  to  pay,  beyond  the  rate  established  b}--  law, 
was  raised  and  indirectly  sustained.  There  a  Broker, 
authorized  by  his  principal  to  borrow  money  in  ordei-  to 
carry  stocks  for  him,  rendered  an  account  to  the  latter  by 
which  it  appeared  that  in  borrowing  money  he  had  been 
compelled  to  pay  to  other  persons,  as  commissions,  suras 

'  Easterly  vs.  Cole,  3  NY.  503.  (Jcxlhy,    4   Tuunt.    310;    Eaton   vs. 

'  Id.;  Hatch  vs.  Douglas,  4S  Conn,  iiell,  5  B.  &  .VM.  31 ;  Ikin  vs.  Brud- 

1 16;  Calton  vs.  Bragj?,  15  Ea«t,  223;  ley,  2  Moo.  20(i. 

Bruce   vs.    Hunter,    3   Camp.    107;  '  0  Hun  (.\.  Y.),  2.33. 
Denton  vs.  Rodie,  id.  100;  Clwyn  vs 


272  Stock-brokers  and  Stock  Exchanges. 

exceeding  the  amount  allowed  by  the  laws  of  the  State  of 
New  York '  for  elfecting  loans,  and  it  was  held  that 
it  was  the  duty  of  the  principal  ])roiiiptly  to  object 
to  the  payment  of  such  commissions ;  and  in  case  he 
failed  so  to  do,  he  cannot,  in  an  action  by  the  Broker  to 
recover  a  balance  due  to  him,  insist  that  such  payments 
were  illegal  and  unauthorized. 

And  a  charge  made  by  a  Broker  for  extra  and  usurious 
interest^paid  to  enable  him  to  carry  his  Client's  stock  was 
sustained,^  on  the  ground  that  the  Client  had  authorized 
the  Broker  to  pay  the  same. 

"Where,  however,  the  Broker  is  himself  the  lender  of  the 
money,  he  cannot  charge  a  rate  of  interest  beyond  that  al- 
lowed by  statute ;  and  the  assent  of  the  client  to  the  payment 
of  such  excess  of  interest  cannot  affect  the  operation  of  the 
laws  forbidding  usury.'  But,  where  a  statute  does  not  more 
than  prohibit  a  recovery  of  interest  in  excess  of  10  per  cent, 
unless  the  contract  is  in  writing,  and  does  not  otherwise  make 
the  rate  of  interest  unlawful,  interest  in  excess  of  that  rate 
may  be  charged  in  an  account  stated  ;  and  money  paid  on  ac- 
count by  the  debtor  may  be  applied  to  the  payment  of  such 
interest  by  the  creditor,  in  the  absence  of  any  appropriation 
by  the  debtor.'     This  proposition  is  laid  down  in  Marye  vs. 

'  2  Rev.  Stat.  (5th  ed.)  979.     By  the    pledge    of    negotiable    instru- 

Laws  of  N.  Y.  of  1850,  c.  172,  corpo-  ments.     Hawley  vs.  Kountz,  6  App. 

rations  may  not  interpose  the  de-  Div.  217. 

fence  of  usur>'.     The  elTect  of  this  '  Smith  vs.  Heath,  4  Daly  (N.  Y.), 

statute  is  to  repeal  the  Statute  of  123.     \  Stock-broker  is  entitled  to 

Usur\'  so  far  as  it  applied  to  corpo-  charge  upon  all  accounts  due  previ- 

rations.     Curtis  vs.  Leavitt,  15  N.  ous  to  any  statutory  change  in  the 

Y.  85,  155;  Belmont  Bank  vs.  Hoge,  interest  rate,  in  accordance  -with  the 

35  X.  Y.  65.     A  similar  effect  was  old  rate.     Rees^vs.  Rutherford,  90 

produced  by  the  enactment  of    L.  N.  Y.  644. 

1882,  c.  237,  upon  all  demand  loans  '  See  last  preceding  note, 

of  $5,000  and  upwards,  secured  by  *  Marye  vs.  Strouse,  C.  C.  U.  S. 


Birideuds,  Assessments,  Calls.  273 

Strouse,  a  case  wbich  arose  out  of  dealings  in  certain  min- 
ing stocks.  In  that  case  it  appeared  that  the  Broker  had 
a  book  called  a  *'  Broker's  Pass-book/'  which  contained  an 
account  of  all  the  transactions  between  himself  and  his 
Client  (being  a  copy  of  the  Broker's  ledger),  the  Client  hav- 
ing possession  of  the  book  at  all  times,  save  when  it  was 
being  "  written  up,"  after  which  it  was  again  returned  to 
him.  The  statute  of  Nevada  ^  provides  that  "  when  there 
is  no  express  contract  in  writing  fixing  a  different  rate  of 
interest,  interest  shall  be  allowed  at  the  rate  of  10  per  cent 
per  annum  for  all  moneys.  .  .  .  Parties  may  agree  in 
■writing  for  the  payment  of  any  rate  of  interest  "whatever 
on  money  due  or  to  become  due."  The  Broker,  without 
any  agreement  in  writing,  charged  his  Client  with  interest 
at  the  rate  of  2  per  cent  per  month,  which  sums  were  duly 
entered  in  the  "  pass-book  "  and  known  to  the  Client.  In- 
terest on  all  advances  during  the  month,  as  well  as  on  the 
balance  brought  forward  from  the  preceding  month,  was 
charged  at  the  same  rate  at  the  end  of  each  month,  and 
WL-nt  into  the  balance  struck.  No  objection  was  ever  raised 
to  these  charges  by  Client,  and  the  court  held  that  the 
facts  ctmstituted  an  account  stated  ;  and  the  agreement  be- 
ing fair  and  perfectly  understood,  and  nothing  in  it  opposed 
to  the  policy  of  the  State  or  good  morals,  such  interest  could 
be  included  in  the  balance  agreed  to  in  stating  the  account. 
And  a  right  may  be  made  to  charge  C(>m])()und  interest, 
either  by  ex|)ress  c<;ntract,  or  it  may  be  imj)li('(l  from  the 
m(jde  of  dt-alin;;  with    former  accounts  oi'  custom;-'  but  a 

(Nevadu)  5    Fc<l.   Rep.   483.     See  2710,    Cutting's  Coiiip.    Laws,    ed 

abw    Iwett     vs.    (Juilvie,    9    Iowa,  1900. 

313.  '  I''ern\iH,soii  vh.  KyfTe,  H  C.  &  F. 

'  Comp,  Luws,  5  .'.J,  now  H  '-*7ir,  \2\.   1  10. 
18 


274  Stock-brokers  aud  Stock  Exchanges. 

Client  is  not  bound,  or  affected  by  the  practice  of  his  bank- 
ers, to  charge  interest  uj^on  interest  by  making  rests  in  their 
accounts  at  stated  intervals,  unless  it  be  proved  that  he  was 
aware  that  such  was  their  custom.'  He  cannot,  however, 
object  to  such  method  of  charging  interest,  or  indeed  to 
any  method  claimed  to  be  unlawful,  in  his  own  action  for 
conversion  of  stocks  sold  for  default  of  margin,  where  it 
does  not  appear  that  the  excessive  charges  would  equal  the 
deficit  in  margins.^ 

And  where  the  taking  of  compound  interest  is  usury, 
it  does  not  affect  a  contract  for  the  purchase  and  sale  of 
the  stock.  The  charging  of  interest  is  outside  of  that  con- 
tract and  may  be  disallowed  by  the  court.^ 

Any  other  expenses  or  actual  disbursements  which  a  Stock- 
broker makes  for  his  Client,  in  pursuance  of  agreement  or 
usage,  would  seem  to  be  recoverable  upon  the  principles  laid 
down  in  the  preceding  cases ;  but  it  should  be  shown  that 
the  expenses  have  been  actually  incurred.  Thus,  in  Mary e 
vs.  Strouse,*  the  Brokers  sought  to  recover  money  laid  out 
for  telegrams.  The  Brokers  were  in  the  habit  of  receiving 
orders  daily  for  the  purchase  and  sale  of  mining  stocks.  It 
often  happened  that  a  number  of  orders  would  be  sent  to  San 
Francisco  in  one  despatch ;  in  such  case  the  practice  was 
to  charge  each  Client  having  an  order  thereon  seventy-five 
cents  (that  being  the  proper  charge  for  a  single  telegram  of 

*  Moore  vs.  Voughton,   1   Stark,  116.     In    that    case    the    Brokers 

487;   Leake's    Dig.    Law   of   Cont.  waived  their  claim  for  compound 

1107;  Chitty  on  Cont.   (11th  Am.  interest  and  charged  simple  interest 

ed.)  957,  note  (h),  and  cases  there  only,  so  that  the  (juestion  whether 

collected;  13th  Eng.  ed.,  p.  545,  and  that  part  of  a  cu-stom  contravening 

cases  cited.  the  policy  of  the  law  would  be  en- 

'  Gould  vs.  Trask,  10  N.  Y.  Supp.  forced  was  not  before  the  court.    Id. 

619.  *  5  Fed.  Rep.  483. 

'  Hatch    vs.    Douglas,    48   Conn. 


Right  of  Client  to  Control.  275 

ten  words),  although  such  Client's  proportion  of  the  actual 
cost  was  often,  if  not  always,  less.  But  no  effort  was  made 
to  keep  an  account  of  the  sums  actually  paid  out  for  tele- 
grams about  the  business  of  the  particular  Client  sought  to 
be  charged.  The  Brokers,  however,  relied  for  recovering 
such  charges  on  the  ground  that  they  were  in  accordance 
with  an  established  usage  of  mining-stock  Brokers  ;  but  the 
court  rendered  judgment  against  them  on  his  i)oint,  hold- 
ing that  a  custom  or  usage  like  the  one  in  question,  of 
charging  not  merely  the  actual  cost  of  telegrams,  but  an 
arbitraiy  price,  if  it  can  be  considered  as  reasonable,  should 
be  established  by  showing  that  both  parties  had  knowledge 
of  it. 

(e.)   Rigid  of  Client  to  Control  and  Take  up  Stock. 

Although,  as  we  have  seen,  the  stock  in  an  ordinary  spec- 
ulation upon  margin  remains  in  the  possession  of  the 
Broker,  it  is  at  all  times,  in  the  absence  of  express  agree- 
ment to  the  contrary,  subject  to  the  orders  of  the  Client. 

The  latter  has  the  right  to  demand  possession  of  the  stock 
upon  payment  of  the  purchase  price  and  the  commissions 
and  i^roper  expenses.' 

'  Markham  v.s.  Jaudon,  41  N.  Y.  McClellan,  JS  111.  34.5).  In  an  ac- 
2.3.5,  at  247.  This  propo.sition  is  tion  against  a  corporation  by  one  to 
conceded  even  by  Mr.  Justice  Grov-  whom  certain  of  its  Ijonds  had  been 
er  in  hi«  dissenting  opinion  in  that  pledged,  to  Ije  declared  the  owner  of 
ca«e.  See  abio,  as  to  right  of  Client  such  bonds  and  registeretl  as  such, 
to  direct  the  stock  to  be  bought  in  the  jjledgor,  although  not  opposing 
on  u  short  side,  Knowlton  vs.  Kitch,  thisdj'uiand  of  the  plcdirec,  is  a  ncc- 
.52  .\.  Y.  2HS,  rev'g  4S  Harb.  40.3.  easary  party  to  the  a<ti(in,  because 
The  same  nde  exists  in  the  case  of  a  he  luus  a  riirht  of  redemption  bv  pay- 
pledge;  the  plefl;ror  havintr  the  gen-  ing  his  debt  and  an  interest  in  any 
eral  propertv  i'l  the  plfnl/c  in;iy  sell  proceofls  after  satisfaction  of  his 
it,  and  cf»mnol  its  rwtorntirtn  npnu  debt  Xewcombe  vs.  Hy.  Co.,  8  N. 
paying  the  debt  secured  (Hnzpi  vs  V    Supp.  30ft      And  it  seems  that 


276  Stock-brokers  and  Stock  Exchanges. 

And  where  the  Broker  sells  the  stock  without  authority, 
a  demand  therefor  is  not  necessary  to  maintain  an  action  for 
conversion,  and  such  action  may  be  maintained  although 
they  were  purcliasetl  in  the  name  of  plaintiff's  agent.' 

Where  the  Broker  has  deprived  himself  of  the  power  of 
delivering  the  stocks  to  his  Client  by  selling  them,  or  other- 
wise disposing  of  them  without,  or  contrary  to,  the  instruc- 
tions of  his  Client,  an  offer  by  the  Broker  to  replace  the 
stock  does  not  bar  the  right  of  action  of  the  Client,  be- 
cause where  an  agent  has  violated  his  duty  or  instructions, 
and  made  himself  liable  to  an  action  for  damages,  nothing 
but  payment  of  the  damages,  and  accord  and  satisfaction,  or 
a  release,  is  a  bar  to  the  same.  The  olfer  of  the  ]3roker 
to  replace  the  stock,  so  long  as  it  is  unaccepted,  affects 
neither  tiie  principal's  right  to  recover  nor  the  measure  of 
damages.^ 

If  the  Broker  wrongfully  hypothecate  the  stock,  his  Client 

can  follow  the  same,  and,  upon  payment  of  the  amount 

due,  compel  the  delivery  of  the  stock  to  himself  ;^  and  if  the 

Client  be  compelled   to  pay  to  the  third  person  an  amount 

greater  than  tliat   which  he  owes  upon  the  same  to  the 

Broker,  he  can  recover  the  surplus  from  the  latter  or  his 

estate.* 

where  stocks  are  pledged  as  collat-  S.  (X.  Y.  Sup.  Ct.)  389;  rev'd,  on 

eral  security  that  the  pledgee  can-  another  groinid,  81  X.  Y.  25. 

not,  whilst  his  debt  remains  unsat-  ^  An  unauthorized  hypothecation 

isfied,  acquire  a  title  to  them  by  of  stocks  by  a  Broker  is  a  conver- 

virtue  of  the  statute  of  limitations,  sion,  but  it  does  not  destroy  the 

Cross  vs.  Eureka  Lake,  etc..  Canal  original  contract  of  pledge  so  that 

Co.,  73  Cal.  302.  the  pledgor  may  demand  a  return  of 

'  Cunningham  vs.  Stevenson,  20  the  stocks  without  tender  or  pay- 

\\.  D.  (X.  Y.)  82.  ment  of  the  debt.     Xew  York,  L.  E. 

'Clarke  vs.  Meigs,  10  Bosw.  (X.  &  W.  R.Co.  vs.  Davies,  .38  Hun,  477. 

Y.)  337,  .3.38;  s.  c.  22  How.  Pr.  (X.  *  And  when  the  Broker's  assigned 

Y.)  340;  Gruman  vs.  Smith,  12  J.  &  estate  is  benefited,  he  is  entitled  to 


Right  of  Client  to  Control.  277 

"WTiei-e  plaintiffs,  Stock-brokers  liokling  stock  for  differ- 
rent  Clients  on  margin,  in  speculative  transactions,  pledge 
the  same  to  outside  Brokers,  who  in  turn  repletlge  oi'  rehy- 
pothecate the  stock  with  a  bank,  and  subsequently  the 
latter  claims  to  appropriate  and  hold  them  as  security 
for  other  distinct  loans  made  to  the  outside  Brokers,  and  in 
consequence  thereof  the  plaintiffs  are  compelled,  under  du- 
ress, to  pay  an  excessive  amount  to  release  the  stocks,  the 
plaintiffs  have  the  right  to  maintain  an  action  against  the 
bank  to  recover  such  excessive  sum.  The  stocks  being  the 
propert}'  of  the  Clients  and  having  been  released,  the  ex- 
tra sum  paid  to  obtain  the  custody  of  the  same  being  the 
money  of  the  plaintiffs,  the  latter  have  the  exclusive  right 
to  recover  the  same.' 

In  London  Joint  Stock  Bank  vs.  Simmons'  it  appeared 
that  a  Stock-broker  in  fraud  of  his  pledgor  had  repledged 
negotiable  instruments  (Cedulas  bonds)  en  hloc  with  securi- 
ties belonging  to  other  persons  for  an  advance  to  him,  and 
then  absconded.  The  bank  had  wo  knowledge  whether  the 
bonds  belonged  to  the  Broker  or  whether  he  had  any  au- 
thority to  deal  with  them,  and  it  had  made  no  inquiries  on 
these  points.  In  an  action  brought  by  the  owner  of  the 
bonds  it  was  held  :  That  as  there  were,  as  matter  of  fact, 
no  circumstances  to  create  suspicion  as  to  the  Broker's  au- 
thority and  power,  the  bank  was  entitled  to  retain  and 
realize  on  the  bonds,  they  being  negotiable  instruments 
taken  for  value  and  in  trood  faith.     And  the  mere  fact  that 


a  preference  over  the  other  creditors  '  L.   R.  .\.  C.  (1892)   201;  rcv'^; 

in    the    payment   of   Hiich   Huri)luH.  8.  c.  (1.S91)  L.  R.   1  ("h.   Div.  270. 

.Mtttt/;r  of  Price,  171  .N.  Y.  15.  See  the  lower  court  (h'cisiou  criti- 

'  Gould   VH.   Fiirincr'H    Loan    and  ci/cd   in  IS  Wii.'^li.  I,    l{.   '20.'^.     Sc'e 

TruHt  Co..  23  Hun,  :f22,  at  p   WH\.  also  Wookcy  v.s.  Pole,  J  B.  it  Aid.  1. 


278  Stock-brokers  and  Stock  Exchanges. 

a  bank  knew  that  the  j^ledgor  was  a  Broker  is  not  suffi- 
cient to  charge  the  bank  with  knowledge.' 

This  case  was  folh^wed  in  Bentinck  vs.  London  Joint 
Stock  Bank/  in  which  stocks  had  also  been  repledged  with 
the  Bank  by  a  Stock-broker  en  Hoc  with  others  as  security 
for  a  loan  to  him,  and  transferred  and  registered  in  the 
names  of  the  bank  directors,  some  by  the  Client  himself, 
some  by  the  Broker  and  some  by  the  parties  from  whom  the 
Broker  had  purchased.  The  Client,  asserting  that  he  had 
onlj''  authorized  the  Broker  to  repledge  for  the  same  amount 
as  he  was  indebted  to  the  Broker,  claimed  to  be  entitled  to 
redeem  from  the  bank  on  payment  of  that  amount.  The 
court  denied  this  claim,  liolding  that  as  upon  all  the  evi- 
dence and  especialh^  upon  that  relating  to  the  "  contango" 
system  under  which  the  Broker  had  purchased  the  stock, 
there  was  nothing  to  lead  the  bank  to  suppose  that  the  se- 
curities were  not  the  Broker's  own  pro])ert\',  it  was  entitled 
to  be  treated  as  a  bona  fide  holchM*  for  value  without  no- 
tice; its  legal  title  to  the  securities  could  not  be  impeached, 
and  the  Client  could  not  redeem  without  paying  the  full 
amount  due  to  the  Bankers  by  the  Brokers. 

In  both  these  cases  the  court  carefully  distinguished  Shef- 
field vs.  The  Banks,^   where  the  banks  had  either  actual 

*  Baker  vs.  Bank,  60  L.  J.  Q.  B.  as  to  put  it  upon  inquiry.    Mulville 

542.     See  also  Goodwin  vs.   Rob-  vs.  Bank,  27  L.  R.  (Ir.)  379.     As 

erts,  L.  R.  1  App.  Cas.  47G;  Rum-  to  what  will  constitute  notice,  see 

ball  vs.  Bank,  L.  R.  2  Q.  B.  D.  194;  London   and   Canadian    Loan   and 

Hone  vs.  Boyle,  27  L.  R.  (Ir.)  137;  Agency  Co.  vs.  Duggan,  (1893)  A. 

Marshall  vs.  Bank,  61  L.  J.  Ch.  465.  C.  506. 

When  the  Broker  is  apparently  the  ^  L.  R.  (1893)  2  Ch.  Div.  120. 

owner,  the  sub  pledgee  may  compel  ^13     A.     C.     333.     See     article 

registration  in  his,  the  subpledgee's,  "Fraudulent  dealing   with    client's 

name.  In    re  Tahiti  Cotton  Co.,  L.  securities"   in   27    Ir.    Law   Times, 

R.  17  Eq.  273,  but  the  sub  pledgee  is  167,  181,  commenting  on  the  English 

liable  if  the  circumstances  are  such  cases  cited  in  the  text,  and  also  on 


Rififht  of  Client  to  Coutrol.  279 

knowledge  or  reason  to  believe  that  the  person  pledging 
negotiable  and  non-negotiable  securities  to  them,  and  who 
was  a  money  lender  with  the  course  of  whose  business  they 
were  familiar,  had  no  further  authority  to  repledgo  other 
than  for  the  same  sum  which  he  himself  had  loaned.  The 
banks  in  this  case  made  no  inquiry  as  to  that  amount,  but 
choose  to  rely  on  the  money  lender  not  to  repledge  beyond  it, 
and  it  was  properly  held  that  they  therefore  were  not  pur- 
chasers for  value,  without  notice,  and  that  the  owner  of 
the  securities  was  entitled  to  them  or  their  proceeds  upon 
payment  to  the  banks  of  the  amount  of  his  debt  to  the 
money  lender. 

If  a  Broker  pledges  a  blank  transfer  signed  by  the  owners 
of  the  certificates  it  is  constructive  notice  to  the  pledgee, 
who  should  have  inquired  into  the  Broker's  authority.^ 
The  tender  by  the  pledgor  of  a  larger  amount  then  is  justly 
due  to  the  pledgee  upon  stocks  pledged  by  his  Broker  is  not 
an  admission  that  the  pledgor  owes  the^amount  tendered,  nor 
is  it  an  estoppel  to  that  effect.^  This  conclusion  proceeds 
upon  a  like  principle  to  that  obtaining  where  a  tender  is  made 
for  the  purpose  of  obtaining  property  sold  and  in  the  hands 
of  the  tendee  claiming  to  own  the  same  and  the  tender  is 
accepted,  in  which  case  the  rule  is  undoubted  that  the  money 
may  be  recovered  back.^ 

In  the  case  of  Smith  vs.  Savin,^  after  the  decision  cited 
at  J).  201,  note  1,  the  plaintiff  becoming  apprised  of  the 
facts  stated  below,  amended  his  complaint  so  as  to  make  his 


several    Irish   cafles   decided   about  '  Talmntre  vh.  Bank,  01  N.Y.551. 

the  Hariu!  tirno.  '  Hnj;^s  vs.  Hoyco,  f>(S  N'.  Y.  2S9; 

'  Cdlonial  Hank  VH.  f'a<ly,  15  App.  Scholey   vs.    Miunford,    GO    N.    Y. 

Cafl.  267;  Fox  vh.  Martin,  01  L.  J.  40H. 

Ch.  473.  *  Ml  N.  Y.  315. 


280  Stock-brokers  and  Stock  Exchanges. 

action  in  effect  one  for  conversion.  On  May  8,  1894,  plain- 
tiff huii  (.leposited  with  B.  ct  Co.,  New  York  bankers,  100 
shares  of  a  stock  as  security  for  any  indebtedness  which  he 
might  incur  to  that  firm.  On  that  day  B.  &  Co.,  without 
plaintiff's  knowledge,  pledged  this  stock  with  other  stocks 
as  security  for  a  loan  with  S.  &  Co.  Both  firms  were 
members  of  the  Stock  Exchange  and  the  loan  was  made 
subject  to  its  rules.  S,  &  Co.  were  bona  fide  liolders  with- 
out knowledge  that  B.  «&;  Co.  were  not  the  real  owners  of 
the  stocks  pledged.  On  May  14  B.  &  Co.  assigned,  and 
plaintiff  then  learning  of  the  pledge  of  his  stocks  notified 
S.  &;  Co.  of  his  interest,  and  requested  a  statement  of  the 
amount  for  which  his  stock  was  lield.  S.  &  Co.  refused  all 
information  or  to  recognize  plaintiff's  rights,  and  on  the 
same  day,  without  notice  to  him  or  to  B.  &  Co.,  and  in 
violation  of  the  rules  of  the  Exchange,  sold  all  the  stock 
pledged,  realizing  thereby  more  than  the  debt  of  B.  &  Co. 
to  them,  but  excluding  the  price  of  plaintiff's  stock,  not 
enough  to  discharge  that  debt.  Plaintiff  did  not  learn  of 
the  sale  of  his  stock  until  June  21,  at  which  time  his  stock 
had  reached  par,  and  the  other  stocks  had  so  far  advanced 
that  if  then  sold  the  proceeds  would  have  entirely  repaid 
the  loan,  leaving  plaintiff's  stock  free  from  any  claim. 
The  Court  of  Appeals  affirmed  the  judgment  of  the  General 
Term,^  and  seems  to  proceed  on  the  same  theory,  i.  e.,  that 
the  plaintiff  being  the  undisclosed  principal  of  his  agents, 
B.  &  Co.,  had  the  right  to  ratify  their  wrongful  pledge  and 
maintain  an  action  for  conversion  of  his  property  against 
S.  &  Co.,  subject  to  their  claim  on  the  proceeds  of  his  stock 
for  the  balance  of  the  loan  after  first  selling  the  stocks 

»69  Hun.  311. 


Risrht  of  Client  to  Control.  281 

pledged  belonging  to  B.  &:  Co.,  and  without  any  right  in 
them  to  apply  the  surplus  on  any  other  loan  to  B.  &  Co. 

Cases  have  arisen  when  the  order  given  to  one  firm 
of  Brokers  was  by  them  executed  through  a  second  firm 
without  the  knowledge  of  the  real  ])urchaser,  and  with  whom 
the  stocks  purchased  were  pledged  as  margin  for  their 
general  account  with  the  fii-st  Brokers.  On  the  insolvency 
of  the  first  Brokers,  the  second  Brokers,  even  if  then  in- 
formed of  the  purchaser's  claim,  ai'o  in  such  equity  as 
entitle  them  to  sell  the  stock  for  the  ])urpose  of  paying 
the  balance  of  indebtedness  on  the  general  account  for 
which  they  held  the  stock  on  pledge.'  But  if  any  surplus 
remains  that  belongs  by  right  to  the  oi-iginal  purchaser,  and 
the  second  Brokers  by  having  presumptive  knowledge  of 
his  legal  right  thereto,  are  liable  to  him  for  its  amount  if 
they  pay  it  to  the  assignees  of  the  first  Bi'okers.^ 

The  one  to  whom  the  Broker  has  liypothecated  his 
Client's  stock  is  a  bona  fide  holder  in  two  classes  of  cases, 
and  as  such  entitled  to  have  his  claim  against  the  Broker 
paid  before  he  delivers  the  stock  to  the  Client.  These 
cases  are  as  follows  : 

1.  Where  no  hypothecation  has  been  authorized  l)v  the 
Client,  but  the  P.rokor  is  apparenth'  the  owner  of  the  stock, 
and  the  pledgee  has  no  notice  that  actually  lie  is  not  such 
owner.^ 

2.  W  here  the  power  to  hypothecate  for  tli(i  general  })urpose 
of  the  Broker's  business  is  expressly  or  impliedly  given.'* 

'  Willard  vs.  \Miitc,  .')0  Htiii,  r)Sl ;  Smith  vs.  Savin,  1  Jl   \,  V.  WXTy,  Lo 

I>e  Marrhant   vw.    Moorr-,   70   Iltin,  Manhaiit  vs.  Monro,  70  Ilun,  .'^'52; 

3.52;  aff'd  ir/)  N.  Y.  200.  afT'd    ir>0    N.     V.    200,    and    oa.«ws 

Md.  ,i(,.,l. 

*  Willard  v.«.  Whit*-,  .OC  Hun,  .')S1 ;        «  Skiff  v.s.  Stoddard.  .sui)ra;   Tal- 

SkifT  vs.  Stoddard,   03  Cotiri.    lOS;  rnaRc  vs.  Bank,  91  N.  Y.  5-13. 


282  Stock -brokers  and  Stock  Exchanges. 

The  difference  iii  the  position  of  one  who  has  not 
authorized  hypothecation  and  one  who  has,  is  this  :  If  the 
stocks  of  both  such  Clients  be  hypothecated  for  the  same 
loan,  the  former  has  the  right  to  demand  that  all  the  stock 
of  the  latter  be  so  applied  as  to  extinguish  all  the  pledgee's 
claim  before  resort  is  made  to  his.^ 

He  stands,  after  informing  the  pledgee  of  his  rights, 
merely  as  a  surety  for  the  repayment  of  the  loan  to  his 
Broker.'^ 

In  either  class  of  cases  the  Client's  title  is  no  further 
affected  by  the  hypothecation  than  so  far  as  the  pledgee 
acquires  the  right  to  secure  by  it  the  repayment  of  the 
amount  advanced  by  him.^ 

And  if  the  stocks  hypothecated  have  been  sold  by  the 
pledgee,  the  surplus  is  to  be  distributed  to  the  owners  of 
the  stock,  preference  in  such  distribution  being  given  to 
those  who  have  not  authorized  the  hypothecation/ 

If  several  loans  have  been  made  to  the  Broker,  the 
pledgee  is  a  holder  for  value  only  to  the  extent  of  the  par- 
ticular loan  upon  the  particular  stocks,^  unless  the  loans 
are  made  generally  upon  all  the  stocks."  And  a  Client 
whose  stocks,  together  with  others  belonging  to  his  Broker, 
have  been,  without  his  authority,  liypothecated  as  security 
for  a  loan  to  his  Broker,  made  subject  to  the  rules  of  the 
Stock  Exchange,  after  he  has  informed  the  pledgee  of  his 
ownership,  has  the  right  to  demand  that  these  stocks  be 

'  WUlard    vs.    TVTiite;    Skiff    vs.  vs.  Requa,  N.  Y.  L.  J.  July  6,  1892. 

Stoddard,  supra.  *  Willard    vs.    White ;    Skiff    vs. 

'  Famell  vs.  Bank,  90  N.  Y.  483;  Stoddard,  supra. 

Smith  vs.  Savin,  141  N.  Y.  315.  ">  Smith  vs.  Savin,  9  N.  Y.  Supp. 

'  WiUard    vs.    "Wliite  ;    Skiff    vs.  106;  Talmage  vs.  Bank,  supra. 

Stoddard;  Le  Marchant  vs.  Moore;  '  Willard  vs.  White  ;  Le  Marchant 

Smith  vs.  Savin,  supra,  and  Mackie  vs.  Moore,  supra. 


Rip:ht  of  Client  to  ( outrol.  283 

sold  in  accordance  with  the  rules  of  the  Exchange,  and  may 
treat  an  unauthorized  sale  as  a  conversion.  Therefore, 
after  the  proceeds  of  the  sale  of  the  other  stocks  have  been 
applied  to  the  payment  of  the  loan,  he  is  entitled  to  the 
highest  price  which  his  stock  reached  within  a  reasonable 
time  after  its  illegal  sale,  and  to  judgment  for  that  sum, 
deducting  therefrom  the  balance  due  the  pledgee  after 
such  application.  In  regard,  however,  to  the  other  stock 
not  belonging  to  him,  he  is  not  entitled  to  charge  the 
pledgee  with  the  highest  price  because  of  the  illegal  sale, 
provided  they  sold  at  the  full  market  value  on  the  day  of 
the  sale.     He  then  could  have  no  cause  of  complaint.^ 

The  Client,  in  order  to  maintain  an  action  for  the  recovery 
of  the  pledged  property,  is  bound  to  show  that  no  title  passed 
to  the  pledgee,  or  that  at  some  time  prior  to  the  commence- 
ment of  the  action  he  had  become  entitled  to  the  jirop- 
erty  pledged,  which  may  be  shown  by  proof  that  the  debt 
for  which  it  was  pledged  had  been  discharged,  or  that  a 
tender  had  been  made  of  a  sufficient  amount  to  dis- 
charge it."^ 

When  a  Stock-broker  ])ledges  his  customers'  securities 
en  Uoc  with  a  bank  even  to  an  amount  beyond  his  indebt- 
edness to  them,  it  was  held  that  as  the  transfer  appeared  to 
be  absolute,  the  baidv  look  good  title  to  hold  the  securities 
as  collateral  for  the  Broker's  indebtedness  to  it,  and  after 
payment  thereof,  the  proceeds  of  sale  belonged  to  the  cus- 
tfjraers  pro  rata? 

'  Smith    VH.    Savin,    supra.      See  In  such  case  so  much  of  n  Client's 

al>V)  TidmaRe   vs.   Rank,  01    N.   Y.  securities  as  remain  with  (he  Imiik 

537.  after  payment  of  their  chiim  out  of 

'Thompson   vs.    Hank,  ll.'i  .N.  V  flic  proceeds  of  the  oilier  .securilie.s 

3.3,3.  will  lie  directed  to  lie  sold,  and  tlio 

•Wliitlotk  VM  Hank,  2t  Mi."**-   M  broker  cannot  object  to  a  present 


284  Stock-brokers  and  Stock  Exchanges. 

And  where  the  security  deposited  as  colhiteral  is  sold  by 
the  Broker  to  a  hyna  Jide  }>urchaser  without  notice,  there 
must  be  a  tender  to  the  latter  of  the  amount  due  by  the 
pledgor,  before  there  can  be  a  recovery.* 

In  German  Saving's  Bank  vs.  Tlenshaw  ^  it  appeared  that 
Stock-brokers  had  hypothecated  witli  defendant  bank,  securi- 
ties deposited  with  them  as  collateral  security  for  stock 
purchased  by  them  for  plaintiff.  The  assignments  and 
power  of  attorney  endorsed  authorized  a  saU  only  of  the 
securities.  This  sale  was  to  be  made,  if  necessary,  to  cover 
the  Client's  indebtedness  in  connection  with  the  stock  deal- 
ing transactions.  And  it  was  held  that  as  the  bank  had 
notice  that  the  securities  were  only  for  sale,  and  that  the 
endorsed  assignment  did  not  authorize  a  j^Jedge,  it  stood 
merely  in  the  place  of  the  original  pledgee,  and  as  nothing 
was  due  to  the  latter  bv  the  pledgor,  it  was  bound  to 
restore  the  stock  to  the  owner  and  that  a  tender  of  the 
original  debt  was  not  necessary.  So  if  the  stock  belonging 
to  the  Client  be  in  the  hands  of  a  receiver  or  assignee  of  an 
insolvent  Broker,  the  Client  can  recover  the  same  upon 
payment  of  the  amount  due  thereon.^ 

The  assignee  of  a  Broker  stands  in  the  same  relation  to 
stocks  hypothecated  by  the  Broker  as  his  assignor  stood, 
and  so  is  not  a  hona  fide  purchaser  for  value  as  against  cus- 
tomers of  the  firm  for  whom  the  stocks  had  been  purchased.'' 

sale  on  the  i^round  that  the  market  is  '  Demand  and  tender  are  not  nec- 

low;  s.  c.  N.  Y.  L.  J.  April  20,  1898.  essa^}^     In  re  Swift,  112  Fed.  Rep. 

'  Talty  vs.  Freedsman's  Bank,  93  315. 

U.  S.  321.  *  Willard  vs.  ^Vhite,  56  Hun,  581. 

*  78  Md.   475.     To    same  effect  Le  Marchant  vs.  Moore,   79   Hun, 

are  Taliaferro  vs.    First    National  352;  Skiff  vs.  Stoddard,  63  Conn. 

Bank.  71  Md.  209;  and  usaa;e  cannot  198. 
control.     First  National  Bank  vs. 
Taliaferro,  72  Md.  164. 


Right  of  Client  to  Control.  285 

Prior  to  the  insolvency  the  general  creditors  of  the  Broker 
had  no  right  to  appropriate  such  stocks  to  the  payment  of 
their  claims,  and,  after  the  assignment,  the  purchasers  may 
redeem  the  stocks  and  the  creditors  are  not  thereby  de- 
prived of  any  right  or  advantage  they  ever  had.  Nor  does 
the  fact  that  the  insolvent  Broker  had  the  stocks  trans- 
ferred to  his  own  name  on  the  corporate  books  confer  any 
such  right  on  the  general  creditors.'  Nor  can  the  pur- 
chasers be  deprived  of  their  right  to  redeem,  and  hold  to 
themselves  the  surplus  after  redemption,  by  the  act  of  the 
pledgees  (the  agents  of  the  purchaser's  Brokers)  in  selling  the 
stocks  Avithout  their  loiowledge  and  immediately  turning 
over  the  surplus  after  payment  of  their  claim  to  the  assignee 
of  the  purchaser's  Brokers.  In  such  a  case  the  pledgees 
are  liable  to  the  purchasers  to  the  amount  of  such  surplus.^ 

The  presentation  to  the  assignee  by  the  customer  of  a 
claim  against  the  Broker's  estate  is  not  an  election  to  hold 
the  estate  and  release  the  stocks.  He  may  still  claim  them 
if  he  can  find  them.' 

The  assignee,  therefore,  not  being  allowed  to  retain  the 
stocks,  but  they,  or  their  proceeds,  if  they  have  been  sold, 
being  subject  to  redemption  by  the  customers  for  whom 
they  wei-e  held,  interesting  questions  arise  as  to  marshalling 
the  secui'ities  or  proceeds  between  the  customers  and  as  to 
the  rights  of  thesul>pledgee  if  the  slocks  liavt'])een  hypothe- 
cated by  the  insolvent  Brokers.  In  AVillard  vs.  White  and 
Skiff  vs.  Stoddard  such  questions  arose,  and  in  Skiff  vs.  Stod- 
dard are  very  ably  treated  and  disposed  of.  In  the  latter  case 
it  appeared  that  tiie  Brokers,  who  carried  on  business  in  Now 

'  Skiff  vs.  StCHldani,  Hii|)r:i.  '  MacUic    vs    U('(|U!i,  .\.  Y.  L.J. 

'  I.«-  Marchiuit  VM    .Moore,  7U  Hum,    .Inly  (1.  I.SU2,  p.  812. 
352;  aff'd  IW)  N    V   2(HI. 


286  Stock-brokers  and  Stock  Exchanges. 

Haven,  bought  aiul  sold  stocks  upon  their  own  account, 
and  for  others.  The  kirgest  part  of  their  business  con- 
sisted in  buying  and  selHng  upon  nuirgins  for  customers. 
At  the  time  of  their  assignment  they  were  in  some  manner 
carrying  various  stocks  and  securities.  A  few  of  them  were 
in  their  own  hands,  others  in  the  hands  of  pledgees  from 
them,  and  others  still  in  the  hands  of  their  New  York 
agents,  who  held  them  as  security  for  advances  to  the  in- 
solvent firm.  The  accounts  of  nearly  all  the  customers 
showed  an  indebtedness  to  the  Brokers,  but  the  stocks  car- 
ried as  aforesaid  were  not  sufficient  to  fill  all  the  orders. 
The  phuntiffs  desired  to  pa}^  their  debit  balances  and  re- 
deem their  securities.  The  defendant  (trustee  in  insolvency) 
disputed  their  right  so  to  do. 

I'rentice,  J.,  in  an  o])inion  which  is  given  at  length 
because  nearly  every  possible  contingency  as  to  these 
questions  is  ex])lained,  said  (p.  22-i) :  "  An  attempt  on  the 
part  of  the  several  plaintiifs  to  redeem,  raises  legal  ques- 
tions which  demand  consideration.  These  questions  relate 
to  the  necessity  of  identification  and  the  character  and  ex- 
tent of  that  identification.  The  pledge  relation  implies  the 
possession  by  the  pledgee  of  some  projierty  to  which  the 
pledge  attaches.  A  pledgor  seeking  to  retake  his  own  must 
be  able  to  identify  it.  The  burden  isuj^on  him,  not  only  to 
establish  the  contract  relation,  but  to  point  out  the  prop- 
erty of  which  the  contract  gives  him  the  right  to  repossess 
himself  upon  redemption.  In  ordinary  cases  of  pledge, 
where  the  property  given  in  security  is  corporeal,  or  con- 
sists of  certain  kinds  of  choses  in  action,  the  means  of 
strict  identification  are  usually  at  hand.  In  cases  like  the 
present,  where  the  pledged  property  is  made  up  largely 
of  stocks,  the  problem  of  identification    becomes  compli- 


Right  of  Client  to  Control.  287 

cated  b}'  reason  of  the  right  in  the  pledgee  to  take  out 
in  his  own  name  a  new  certilicate,  and  to  presei've  no  sep- 
aration of  particular  shares  from  other  like  shares  held  by 
the  pleiigee.  A  strict  identification  of  precise  shares  is  thus 
oftentimes  rendered  impossible.  Kevertheless,  both  in  law 
and  in  fact,  shares  are  being  held  in  pledge.  Evidently 
the  rule  which  demands  identification  as  a  prerequisite 
to  repossession  must,  jvhen  such  conditions  are  encountered, 
receive  such  reasonable  construction  and  apjilication  as 
will,  upon  the  one  hand,  satisfy  the  purpose  of  the  rule, 
and  upon  the  other  hand  do  justice  to  the  parties.  It 
will  not  do  to  dispense  with  the  necessity  of  identifica- 
tion. Neither  will  it  do  to  permit  a  permissible  practice 
on  the  part  of  the  pledgee  to  deprive  a  pledgor  of  his 
property." 

'•  If  we  look  at  the  conditions  which  the  claims  of  the 
several  plaintiffs  present,  we  find  that  nearly  every  possi- 
ble contingency  exists.    These  may  be  classified  as  follows : 

"  Class  1.  Where  it  can  be  shown  that  the  precise  certifi- 
cates of  stock  or  evidences  of  title  originally  purchased  in 
the  execution  of  a  plaintiff's  order  were  held  for  him 
by  the  Brokers  at  the  time  of  their  assignment. 

"  Class  2.  Where  it  appears  that  certain  particular  certifi- 
cates of  stock  or  evidences  of  title  were  by  the  Brokers 
being  carried  in  fulfilment  of  a  plaintiff's  order,  although 
it  may  be  impossible  to  establish  that  such  certificates  or 
evidences  of  title  were  the  precise  ones  originally  pur- 
chased in  the  execution  (jf  that  order. 

"  These  classes  present  no  difficulty.  TIh'  plaint  ills  mak- 
ing such  identification  arc;  cleai-ly  entitled  to  rcdetMii.  'ihis 
identification  being  a  strict  one  (jf  j)r(*r;ise  property,  it,  of 
course,  f<jll<jw.s  that  it  must  taUt;  j)recedenco  of  any  general 


288  Stock-brokers  and  Stock  Exchanges. 

identification  such  as  remains  to  be  considered,  and  gives 
to  the  fortunate  pledgor  the  first  rigLit  to  tliat  which  is  so 
identitied." 

"Class  3.  Where  no  more  precise  identification  is  pos- 
sible than  that  the  Brokers  were  carrying  a  block  of  stocks 
of  a  particular  kind  sufficient  to  satisfy  the  demands  for  that 
kind  of  stock  of  all  their  customers,  including  themselves." 

"  The  problem  of  identification  and  distribution  as  re- 
lated to  class  three  is  not  a  difficult  one.  If  the  Brokers 
were  at  the  time  of  their  failure  carrying  a  block  of  certain 
stock,  and  the  orders  of  their  customers  taken  together 
called  for  them  to  carry  that  amount  of  stock,  the  identi- 
fication of  that  stock  as  being  stock  carried  for  these  cus- 
tomers, the  requisite  amount  for  each,  is  clearl}'  reasonable 
and  sufficient.  The  shares  being  all  alike  and  merely  rep- 
resenting an  ownership  of  a  certain  undivided  interest  in 
a  corporation,  the  interests  of  all  concerned  are  satisfied  by 
a  distribution  to  each  pledgor  of  his  proper  numberof  shares." 

"  Class  4.  Where  it  appears  that  the  Brokers  were  car- 
rying a  block  of  stocks  of  a  particular  kind  not  capable  of 
the  precise  identification  contemplated  in  classes  1  and  2,  and 
the  whole  amount  of  unidentifiable  shares  is  insufficient  to 
satisfy  the  demand  of  all  their  margin  buying  customers, 
including  themselves,  but  suflBcient  to  satisfy  the  demands 
of  all  such  customers,  exclusive  of  themselves,  either  as  in- 
dividuals, or  as  a  partnership. 

"  This  class  presents  the  same  problem  as  class  3,  modi- 
fied only  by  the  additional  factor  that  the  shares  in  the 
Broker's  hands  were  insuflicient  to  meet  the  demands  of 
their  customers  and  themselves  together.  The  Brokers  had 
the  right  to  do  as  they  pleased  with  their  own.  For  their 
customers  they  were  bound  to  hold  and  carry  the  requisite 


Right  of  Clieut  to  t'outrol.  289 

stocks.  If  they  did  not  have  on  hand  what  was  called  for 
by  their  customers'  contracts  and  their  own  purchases,  it 
will  be  presumed  in  the  absence  of  evidence  to  the  contrary 
that  the  situation  arose  in  a  wav  consistent  with  their  rigflit 
and  iluty  and  that  the  stocks  on  hand  were  held  for  their 
custoraers.  This  presumption,  however,  must  yield  to  the 
fact.  If  it  appeared  that  certain  shares  were  at  the  time  of  the 
assignment  specifically  held  by  the  insolvent  firm  upon  the 
purchases  of,  or  for  itself,  or  its  members,  and  thus,  and  not 
otherwise,  actuall}' carried,  the  right  thereto  of  the  trustee 
or  administrator  of  such  purchaser  and  owner  would  be  as 
clear  as  that  of  a  plaintiff  who  is  able  to  make  a  like  strict 
identification.  Should  the  exercise  of  this  right  by  the  de- 
fendant as  trustee  of  the  insolvent  Broker  reduce  the 
amount  of  any  kind  of  stock  remaining  below  that  required 
to  satisfy  the  demands  of  customers,  the  distribution  would 
fall  under  the  principles  of  class  5  to  be  considered.  Other- 
wise each  customer  would  take  his  full  quota  of  stock." 

"Class  5.  Where  it  appears  that  the  Brokers  were  carry- 
ing a  block  of  stocks  of  a  particular  kind  not  capable  of  the 
precise  identification  contemplated  in  classes  1  and  2,  and 
the  whole  amount  of  such  unidentifiable  shares  is  insulli- 
cient  to  satisfy  the  demands  of  all  their  margin  buying  cus- 
tomers exclusive  of  themselves  either  as  individuals  or  as 
partners. 

"  Our  previous  discussion  has  eliminated  certain  of  tho 
features  of  this  class.  There  remains  the  single  question  as 
to  what  shall  be  done  when  it  appears  after  all  efforts  at 
precise  identificati(m  have  l)een  exhausted,  and  after  th(3 
claims  of  the  Brokers  as  purchasers  have  been  cut  off,  that 
there  remains  a  block  of  stock  insiifficif^nt  to  meet  tho  de- 
mands of  all  th('  pledgors  of  that  stock.  There  is  a  short- 
ly 


290  Stock-brokers  and  Stock  Exchanj^es. 

age  which  must  fall  to  the  loss  of  somebody.  ...  It  is 
not  possible  to  show  to  whom  it,  share  by  share,  does  be- 
long. The  shares  are  all  alike.  AVe  think  that  the  iden- 
tification is  suiiicient  to  justify,  and  that  equity  requires, 
the  division  of  the  stock ^a>  rato  among  all  those  for  whom 
the  Brokers  were  holden  to  carry  such  stock.  This  course 
full}'  protects  the  creditors  of  the  Broker.  No  stock  is 
taken  from'  the  assets  of  the  linn  to  which  it  was  ever  by 
any  possibility  entitled.  It  gives  the  pledgors  their  rights 
so  far  as  may  be  and  in  an  equitable  manner."  ^ 

But  where  the  Broker  has  so  mixed  the  stock  he  has 
bought  for  his  Client,  in  hypothecating  it  with  several  pledg- 
ees on  separate  loans  by  each,  that  no  Client  can  identify 
any  of  the  stock  in  the  hands  of  any  pledgee  as  the  stock 
bought  on  his  order,  he  cannot  say  it  is  his  stock.  And  if, 
notwithstanding  such  hypothecation,  the  Broker  had  con- 
tinued to  hold  stock  enough  to  deliver  to  each  Client  all  to 
which  he  might  be  entitled  on  paying  the  amount  due  from 
him  to  the  Broker,  the  Client  could  not  claim  any  right  to 
the  hypothecated  stock  ;  and  this  results  from  the  rule  here- 
tofore referred  to,  that  the  Broker  is  not  bound  to  keep  on 
hand  the  identical  stock  purchased,  but  his  oiiligation  to 
his  Client  is  fulfilled  if  he  keep  on  hand  sufficient  like  stocks, 
and  be  ready  to  deliver  the  same  to  his  Client  at  any  time 
that  they  are  demanded.  These  positions  were  enforced  in 
Chamberlin  vs.  Greenleaf.-     A  pledgee,  with  whom  securi- 

'  See  also  Mutton  vs.  Peat,  2  Ch.  ure  of  damage  in  a  case  where  a 

Div.    (1900)   79;   In  re  Graff,    117  Broker  hypothecates  stocks  belong- 

Fed.  Rep.  343;  Sillcocks  vs.  Gallau-  ing  to  his  general  Clients  and  which 

det,  66  Hun,  522;  Matter  of  Pierson,  cannot  be  identified  by  anj-  particu- 

19  App.  Div.  478.  lar  one.     See  also  Gould   vs.   The 

-4  Ab.  XewCas.  (X.  Y.)  178;and  Central  Trust  Co.,   6  id.    381,   for 

consult  this  case  also  for  the  meas-  principle  of  marshalling  assets  real- 


Right  of  Client  to  Control.  291 

ties  belonging  to  several  persons  are  pledged  as  collateral 
security  for  a  loan  nuule  thereon  to  one  having  all  the  se- 
curities in  his  possession,  and  who  wrongfully  re-pledges  or 
re-hypothecates  them,  should  \)roceed _i)ar I jmssu  in  the  ap- 
plication of  the  securities  to  the  satisfaction  of  the  loan, 
so  that  whatever  loss  should  be  occasioned  to  the  parties 
whose  stocks  are  wrongfully  pledged  shall  fall  on  thein  rat- 
ably. Accordingly,  if  the  pledgee,  without  notice  of  the 
claims  of  the  true  owners,  sells  the  securities  of  one,  thus 
realizing  sufficient  in  amount  to  repay  his  loan  on  all  the  se- 
curities, arid  leaving  in  his  hands  as  surphis  the  securities 
of  the  others,  a  court  of  equity  will  order  such  surplus  se- 
curities to  be  sold,  and  the  proceeds  ap[)lied  so  that  the  bur- 
den of  the  loan  will  be  borne  by  all  in  equitable  propor- 
tions.'    And  where  a  draft  for  money   was  intrusted  to  a 

ized  from  sale  of  pled^ied  stocks  to  preferred  creditors  the  proceeds 
which  have  been  re-hypothecated,  of  the  sale  of  a  customer's  stocks, 
See  also  Rich  vs.  Boyce,  39  Md.  314.  after  payment  of  the  amount  due  by 
But  although  a  Stock-broker  had  the  customer,  in  an  action  by  the 
surrendered  the  pledged  certificate  latter  to  recover  such  sum.  Adams 
and  obtained  a  new  certificate  in  vs.  Ball,  24  App.  Div.  GO.  When 
his  own  name,  and  the  certificate  one  of  three  notes  with  some  bonds 
eub-pledjie<l  to  defendant  bank  bore  which  with  other  bonds  were  do- 
a  different  n'unl>er  from  the  Client's  posited  ;us  collateral  liave  been  sub- 
stock,  the  latter  may  nevertheless  pledged,  the  original  pledgors  may 
recover  the  certificate  from  the  bank  redeem  same  from  the  sub-pled}?oe 
when  the  weight  of  evidence  shows  on  payment  of  the  amount  of  the 
that  it  Ls  Ills,  Mould  vs.  Importer's  note.  McDonald  vs.  Grant.  09  St. 
<t  T.  N.  Bank,  72  .\pp.  Div.  30,  even  Rep.  4S.  As  to  when  interpleader 
although  he  has  presented  a  claim  will  l)e  refused  as  between  the  origi- 
to  the  tnwtee  in  bankruptcy  of  the  rial  pledgor,  the  assignee  of  the 
Broker  Id.;  Rhinelander  vs  Bank,  pledgee,  and  the  sub-pledgoo,  see 
3»)  App  Div.  11.  Ah  to  the  rights  of  Dodge  vs.  Lawson,  19  X.  Y.  Supp. 
custotners  whose  stock  wji.s  merely  904.  And  jus  to  indemnity  to  sub- 
on  deposit  for  sale  and  of  t  how;  whose  pledgee,  see  Union  Par.  R.  Co.  vs. 
Ht<M-k  wa«  pledged  to  the  Broker,  see  SchifT,  74  Fed.  Rep  074. 
laHt  cited  caws.  An  aKHigne*- will  be  '  CiouM  vs.  Central  Tnist  Co.,  0 
enjoine<l  pendentf  Iit«-  fniui  paying  Ab      New    Cas.     (N.  Y.)    3.S1       If, 


292  Stock-brokers  and  Stock  Exchanges. 

Brokei-  Lo  buy  Exchequer  bills  lor  his  })rincip;il,  and  the 
Broker  received  the  iiKJueys  and  misappUed  it  by  pui-clias- 
ing  American  stock  and  bullion,  iuteiuling  to  abscond  with 
it  and  go  to  America — and  did  accordingly  abscond,  but 
"Was  taken  before  he  quitted  England,  and  thereupon  sur- 
rendered to  the  principal  the  securities  f(^r  the  American 
stock  and  the  bullion,  who  sold  the  whole  and  received 
the  proceeds — held,  that  the  principal  was  entitled  to  with- 
hold the  proceeds  from  the  assignees  of  the  Broker,  who  be- 
came bankrupt  on  the  day  on  which  he  so  received  and 
misapplied  the  money.^ 

And  Avhere  bankrupts,  in  their  character  of  Stock-brokers, 

pledjred  with  t)ie  stocks  of  tho  Siipp.  106.  See  this  case  on  second 
Cheats,  are  also  some  stocks  of  tlie  trial,  141  N.  Y.  315.  Where  de- 
Brokers  themselves,  as  l^etween  the  fendants  holding  certain  stocks  as 
Clients  and  the  Brokers,  equity  collateral  security  which  had  subse- 
would  doubtless  apply  the  Brokers  quentlj^  been  assigned  to  the  plain- 
stocks  to  the  extinguishment  of  the  tiff,  sold  the  same  with  the  assent  of 
debt  before  resort  is  made  to  the  the  assignees;  held,  in  an  action  by 
stocks  of  the  Client,  but  where  the  the  assignees  against  the  defendants 
Brokers  have  become  insolvent  and  to  recover  the  surplus  proceeds  of 
the  rights  of  other  creditors  have  the  stock,  that  the  defendants  could 
intervened,  the  Clients  are  not  en-  claim,  against  such  surplus,  only 
titled  to  such  relief.  It  would  in  ef-  such  an  amount  as,  if  tendered  by 
feet  give  th'em  a  priority  over  other  the  plaintiffs  at  the  time  of  the  as- 
creditors.  Skiff  vs.  Stoddard,  63  signment,  with  interest  and  expendi- 
Conn.  198.  See  also  Van  Woert  vs.  tures,  would  have  cancelled  and 
Olmstead,  71  X.  Y.  Supp.  431.  discharged  the  claims  of  defendants 
WTiere  there  has  been  a  series  of  as  pledgees  of  the  stock;  that  the 
loans  and  stock  of  various  owners  title  to  the  surplus  moneys  at  the 
has  been  pledged  to  secure  each  time  of  the  sale  was  vested  in  the 
loan,  a  surplus  arising  on  the  sale  assignees;  and  consequently  the  de- 
of  the  stocks  pledged  on  one  loan  fendants  could  set  off  no  claim 
will  not  be  applied  to  a  loss  arising  which  they  at  that  time  held  against 
on  a  sale  of  the  stocks  pledged  on  the  plaintiff's  assignors.  Van  Blar- 
another.  The  pledgee  is  a  holder  com  vs.  Broadway  Bank,  37  N.  Y. 
for  value  only  to  the  extent  of  the  540. 

particular  loan  upon  the  particular  '  Taylor  vs.  Plumer,  3  M.  &  S. 

stocks.     Smith  vs.  Savin,  9  N.  Y.  562. 


Right  of  Client  to  Control.  298 

received  dividends  on  dividend  warrants  intrusted  to  them, 
and  pledged  the  dividend  warrants  for  their  own  debt,  they 
were  ordered  to  be  delivered  up  to  trustees  who  had  em- 
ployed the  bankrupts  as  their  Brokers.^ 

And  although  Brokei^  are  within  the  list  of  traders  in  the 
English  Bankruptcy  Acts  of  1861  and  18G9,^  yet,  in  the  event 
of  such  bankruptcy,  a  sura  of  stock  or  shares  which  the  Bro- 
ker has  bought  for  his  principal  and  taken  into  his  own  name 
are  not  in  his  order  and  disposition  so  as  to  pass  to  his  as- 
signees or  trustee.^  The  theory  of  the  law  is,  that  the  prop- 
erty of  a  principal,  intrusted  by  hun  to  his  factor  or  Broker 
for  any  special  purpose,  belongs  to  the  principal,  notwith- 
standing any  change  which  that  property  may  have  under- 
gone in  point  of  form,  so  long  as  such  property  is  capable  of 
being  identified  and  distinguished  from  all  other  property, 
and  that  all  property  thus  circumstanced  is  equally  recover- 
able from  the  assignees  of  the  factor,  in  the  event  of  his  be- 
coming a  bankrupt,  as  it  was  from  the  factor  himself  be- 
fore his  bankruptcy.  And  if  the  property  in  its  original 
state  and  form  was  covered  with  a  trust  in  favor  of  the  prin- 
cipal, no  change  of  that  state  and  form  can  divest  it  of  such 
trust,  or  give  the  factor  or  agent,  or  those  who  represent  him 

*  Exp.  Gregor)'  vs.  Wakefield,  2  livers  them  to  tlie  customer  oa  re- 
M.  D.  ct  DeG.  613.  As  to  doctrine  ceipt  of  the  contract  price,  the 
of  suhpledginj^  and  re-hypothoca-  transaction  i.s  a  prefer(>nce  in  viola- 
tion, see  p.  270,  et  seq.  tion  of  the  insolvent  law  (I'ub.  St. 
'Taylor  vs.  Plunier,  supra.  ch.  157,  §90)  to  the  extent  of  the 
'  Id.  In  Massachu.setts  it  lias  excess  in  \iilue  over  the  contract 
been  held  that  if  a  Broker  purchases  price.  Weston  vs.  Jordan,  Kis 
shares  for  a  customer  on  a  marjiin,  Ma-ss.  401.  When  a  Client  becomes 
and  on  account  of  his  insf»Ivency  is  bankrupt,  see  its  to  ri;;lit  of  lien  of 
unable  U>  deliver  tliem,  and  event-  owner  of  property  left  with  the 
ually  purcha-ses  them  on  the  market  Client  for  sale,  its  against  tlw  trns- 
for  a  price  higher  than  the  customer  tee,  In  re  .Mulli;;an,  110  I'cd  Hep 
contructc<l  to  pay  for  them  und  de-  715. 


294  Stock-brokers  and  Stock  Exchauges. 

in  riglit,  any  other  more  valid  claim  in  respect  to  it  than  they 
respectively  luid  before  such  change.  An  abuse  of  trust  can 
confer  no  rights  on  the  [)arty  abusing  it,  nor  on  those  who 
claim  in  privity  with  him.'  The  case  of  Tayler  vs.  Plumer 
was  directly  endorsed  in  Ex  parte  Cook.^  In  that  case  C, 
a  trustee,  employed  a  Stock-broker  to  make  purchases  of  cer- 
tain railway  shares,  informing  him  that  it  was  for  a  certain 
trust  fund  in  which  he  was  interested.  C.  left  the  money 
Avith  the  Broker  to  make  the  purchase,  which  was  duly 
made  on  the  Exchange  in  the  usual  way  for  the  next  settling- 
day,  the  Broker  in  the  meantime  depositing  the  money  in 
bank.  Before  the  settling-day,  however,  the  Broker  failed, 
and  moved  for  a  declaration  in  the  Bankruptcy  Court  that  a 
portion  of  the  money  in  the  hands  of  the  bankruptcy  trustees 
belonged  to  C.  This  was  refused  by  the  registrar,  on  the 
ground  that  the  transaction  constituted  the  relation  of  debt- 
or and  creditor  between  C.  and  the  Stock-broker,  and  not 
that  of  trustee  and  cestui  que  trust.  But  this  decision  was 
reversed  on  appeal,  the  appellate  court  holding  that  the 
Stock-broker  had  notice  that  the  money  belonged  to  a  trust 
fund,  and  that  the  money  could  be  traced.  And  the  court 
also  expressly  said  that,  even  if  there  had  been  no  notice,  the 
relation  of  the  Stock-broker  and  C.  was  of  a  fiduciary 
character,  so  as  to  make  the  case  undistinguishable  from 

'  Taylor  vs.  Plumer,  supra,  plodsee's  knowledge,  pledged  secu- 
Where  one  executor  has  wTongfully  rities,  the  pledgee  can  only  relieve 
and  for  his  own  use,  pledged  secu-  himself  from  liability  by  showing 
rities  belonging  to  the  estate,  his  that  the  money  loaned  was  applied 
coexecutor  may  pay  the  amount  for  for  the  benefit  of  the  estate.  Moore 
which  they  were  pledged  and  regain  vs.  American  Loan  k  Trust  Co.,  115 
pos.se.ssion    of    the    bonds.     New-    X.  Y.  65. 

combe  vs.  R.  R.  Co.,  8  X.  Y.  Supp.       '  In  re  Strachan,  L.  R.  4  Ch.  Div. 
366.     And  if  an  executor  has,   in    123. 
abuse  of  his  trust,   and   with   the 


Right  of  Client  to  Control. 


295 


Taylor  vs.  Pluraer.'  But  a  pledgor  cannot  follow  the  se- 
curities which  he  has  placed  with  a  pledgee  in  the  hands  of 
a  purcbiiser  in  good  faith  from  the  pledgee,  purchasing  with- 
out notice  of  the  pledge.- 

An  important  question  in  the  law  of  pure  pledge  is  as  to 
the  time  when  the  pledgor  may  be  called  upon  to  redeem. 
When  is  the  debt  due  ?  This  depends  upon  the  circum- 
stances of  the  contract.  By  the  pledge  the  title  does  not 
pass  to  the  pledgee,  but  remains  in  the  pledgor  until  di- 
vested by  a  sale  upon  notice  or  by  judicial  proceedings.^ 

If  no  time  of  redemption  be  fixed  by  the  terms  of  the 


'  See  further,  upon  the  subject  of 
commingUng  funds  and  right  of 
principal  or  cestui  que  trust  to  fol- 
low property,  note  to  Hooley  vs. 
Gieve,  9  Ab.  New  Cas.  (X.  Y.)  8,  at 
p.  41.  And  the  United  States 
Supreme  Court,  in  the  case  of 
The  Central  National  Bank  of 
Baltimore  vs.  Conn.  Mutual  Life 
Ins.  Co.,  104  U.  S.  54,  has  de- 
cided that  if  money  held  by  a  person 
in  a  fiduciary  capacity,  though  not 
as  trustee,  has  been  paid  by  him  to 
his  account  at  his  banker's,  the  per- 
son for  whom  lie  holds  the  money 
can  follow  it,  and  ha.s  a  charge  on 
the  balance  in  the  banker's  hands, 
although  it  Ls  mixed  with  hLs  (the 
depositor's)  own  moneys;  and  that 
the  bank  cannot  be  permitted  to  aa- 
sert  its  own  claim  to  the  balance  of 
an  agpiicy  account  as  agaiitst  the 
beneficial  owner  when  the  iKink  ha.s 
notice,  either  actual  or  constructive, 
of  Huch  ef^uity.  Thi.^  \\q\\  is  al.so 
endor»©d  in  the  <;i.se  of  Baker  \s. 
N.  Y.  Nat.  Bank,  de<ide<l  by  the 
N  Y  fk-t.fral  Term,  Oct.  1S81. 
N      y     Daily   Urg    Nov.    9,    1881, 


s.  c.  25  Hun,  453;  aff'd  on  new  trial, 
ICON.  Y.  31;  16  Abb.  N.  C.  458. 
In  Butler  vs.  Sprague,  66  N.  Y.  392, 
where  special  deposits  were  sought 
to  be  reclaimed,  the  court  held  that 
unless  the  depositor  could  trace  the 
identical  money,  lie  could  not  stand 
on  any  better  footing  than  any  ordi- 
nary creditor.  Compare  Le  Roy 
vs.  Mathewson,  47  N.  Y.  Super.  Ct. 
389,  and  see  generally  People  vs. 
City  of  Rochester,  93  N.  Y.  582. 

'  Little  vs.  Barker,  Hoff.  Ch.  (N. 
Y.)  487;  Strickland  vs.  Leggett,  21 
N.  Y.  Supp.  3.56.  Nor  can  he  fol- 
low them  into  the  hands  of  a  bona 
fide  pledgee  of  his  ple<igce,  unless  the 
debt  of  the  latter  is  paid  or  its 
amount  tendered.  Thompson  vs. 
Nat.  Bk.,  113  N.  Y.  325;  Work  vs. 
Tibbets,  87  Hun,  352.  See  also 
Thomson  vs.  Bank.  IS  .\.  C.  (1893) 
2H2,  and  cases  cited. 

'  Markham  vs.  Jaudon,  41  \.  Y. 
2.35;  StoriLS  vs  Marsh.  2  Denio,  230; 
Browni'Il  vs  Hawkins,  4  Bnrh  491; 
Gniman  vs  Smith,  SI  N.  Y  25; 
Bailey  vs.  Drew,  17  N.  Y.  St.  Rep. 
18.5. 


296  Stock-brokers  aiui  Stock  Excluiiiges. 

contract  of  pledge,  the  pledgor  may  redeem  at  any  time, 
aud  althougii  a  day  of  payment  be  fixed  he  may  redeem 
after  that  day.  lie  has  his  whole  lifetime  to  redeem, 
provided  the  pledgee  does  not  call  upon  him  to  do  so,  as  he 
has  a  riglit  to  do,  at  any  time  in  his  discretion,  and  if 
no  such  call  be  made,  the  representatives  of  the  pledgor 
may  redeem  after  his  death.' 

Until  his  title  is  divested  by  sale  or  judicial  proceed- 
ings the  pledgor's  right  to  redeem  is  a  continuing  one, 
and  as  an  incident  to  this  right  of  redemption  he  may  at 
any  time  during  its  continuance  invoke  the  aid  of  a  court 
of  cquit}''  and  ask  to  have  the  amount  of  his  debt  ascer- 
tained, if  uncertain. - 

This  cause  of  action  does  not  depend  upon  the  rights 
of  the  ])arties  as  thev  existed  at  the  time  of  the  pledge, 
but  depends  upon  the  rights  of  the  pledgor  to  redeem  at 
the  time  his  bill  is  filed  and  the  cause  of  action  upon  which 
such  bill  is  founded  accrues,  not  when  the  collateral  security 
was  first  pledged,  but  when  the  right  to  redeem  was  first 
insisted  upon,  namely,  upon  the  filing  of  the  bill,  and  so  the 
statute  of  limitations  is  no  bar  to  the  action.^ 


»  4  Kent's  Com.  (14th  ed.)  138.  Roberts  vs.  Berdell,  15  Ab.  N.  S. 

'Kent  vs.  Westbrooke,  1  Vesey,  183;  Purdy  vs.  Sistare,  2  Hun,  126. 

278;  Bailey  vs.  Drew,  supra.  The  ca.se  of  Roberts  vs.  Syk.es,  30 

'  Bailey  vs.   Drew,   supra;  Bow-  Barb.  173,  to  the  contrary  must  be 

man  vs.  Close,  20  N.  Y.  Supp.  415;  looked  upon  as  overruled.     Miner 

N.  Y.  L.  J.  .\un;ust  11,  1892.     This  vs.  Beekman,  50  N.  Y.  342;  BaUey 

rule  is  also  applicable  in  an  action  vs.  Drew,  supra. 

for  the  conversion  of  the  pledge.  The  question  whether   collateral 

A  mere  omission  of  the  pledgee  to  security  for  a  time  note  is  entitled  to 

return  the  pledge  after  the  paj'ment  days  of  grace  as  well  a.s  the  note  has 

of  the  del)t  is  not  a  conversion.     No  been    answered    in    the     negative, 

conversion  is  committed  until  there  Rankin  vs.   McCullough,    12   Barb, 

has  been  a  demand  for  tlie  return  of  103. 
the  pledge  and  a  refusal  to  return. 


Duty  of  Broker  to  Soil.  297 

The  same  principle  also  applies  to  an  action  by  the 
pledy-ee  to  foreclose  bis  lien.' 

y.  Duty  of  Broker  to  Sell— ''Stop  Order." 

Tbe  Broker,  wbcn  directed  to  sell,  is  bound  to  comply 
with  the  order,  and  to  sell  tbe  stocks  at  the  price  named 
or  at  tbe  market  price,  if  that  be  tbe  instruction.  This 
consequence  flows  from  tbe  ownership  of  the  stock.* 

Kor  does  tbe  Client  lose  the  right  to  order  a  sale 
when  his  margin  is  exhausted.  His  orders  to  sell  the 
securities  must  still  be  obeyed.  Any  otlier  rule  would 
permit  an  agent  to  speculate  at  the  risk  of  bis  principal,^ 
So  a  Broker  cannot  refuse  to  sell  stocks  and  invest  the  pro- 
ceeds in  the  pui'cbase  of  othei's,  because  tbe  balance  due 
him  for  advances  exceeds  the  value  of  tbe  stocks  ordered 
to  be  sold,  particularly  if  tbe  conversion  requires  no  further 
advance  from  him;''  and  where  a  Client  delivers  a  speci- 
fied quantity  of  stock  to  a  Stock-broker  for  sale  with  in- 
structions to  sell  when  tbe  market  value  should  "  go  up," 
and  the  Broker  transfers  part  of  the  same  to  a  third  per- 
son, and  part  to  himself,  the  Client  can  treat  this  as  a  sale 
of  bis  stock  ;  and  it  is  no  defence,  that  it  is  a  custom 
among  Brokers  to  place  tbe  stock  sent  tlii-in  for  sale  to 
their  own  names  on  the  books  of  the  company,  and,  in 
making  transfers,  to  do  so  indiscriminately,  without  re- 
gard to  tbe  |)erson  from  whom  the  stock  was  received, 
or  for  whose  account  the  same  was    sold.     A    I>roker,  in 


'  B^jwman  VH.  Close,  Bupra.  Supp.   .391;   uff'd    witlioiit.   opiiiidii, 

'Galijiher   vh.   Jono.s,    129  U.   S.    l.'jO  .\.  Y.  703. 
193.  '  Ciulighcr  V8.  Joiioi,  Huprii. 

'  Ziinineniiuii  vh.   llcil,  33  .\.   V. 


298  Stock-brokers  and  Stock  Exchaii|:?es. 

such  a  case,  lias  no  i-iglit  to  pledge  or  do  anything  else 
with  the  stock  except  to  sell  it;  and  the  Client  is  en- 
titled to  recover  the  market  value  of  the  stock  at  the  time 
of  its  transfer,  and  cannot  be  compelled  to  accept  from  the 
Broker  a  certificate  of  an  equal  number  of  such  shares  of 
stock.' 

As  to  the  duty  of  the  Broker,  the  general  rules  are  the 
same  as  in  the  case  of  an  order  to  purchase — viz.,  that  the 
Broker  is  bound  rigidly  to  carry  out  the  directions  in 
respect  to  time,  price,  number  of  shares,  manner,  and 
place,  and  to  act  with  prudence  and  caution  and  the 
utmost  good  faith.2  ^^,^  agent  with  express  authority 
to  sell  has  no  implied  authority  to  wai'rant,  when  the 
property  is  of  a  description  not  usually  sold  with  war- 
ranty. One  employed  to  make  a  sale  of  bank  stock  is 
not  presumptivelv  empowered  to  warrant  it  in  the  name 
of  the  principal,  and  the  receipt  of  the  proceeds  by  the 
owner  of  the  stock,  in  ignorance  of  an  unauthorized  warranty 
by  the  agent,  is  not  a  ratification  of  the  unauthorized  en gage- 

*  Parsons  vs.  Martin,  77  Mass.  a  jireater  price  could  have  been  ob- 
111.  taiued  or  some  other  such  fact  must 

*  See  these  questions  discussed,  be  shown  in  order  to  rebut  tlie  pre- 
ante,  p.  205;  Bush  vs.  Cole,  28  N.  Y.  sumption  of  the  Broker's  good  faith. 
261;  Taussig  vs.  Hart,  58  id.  425,  Day  vs.  Jameson,  supra.  Where  a 
428;  Ryder  vs.  Sistare,  15  Daly,  Broker  is  invested  with  di.scretion- 
90;  Day  vs.  Jameson,  33  X.  Y.  St.  ary  powers  as  to  whether  a  sale 
Rep.  379;Smith  vs.  Bouvier,  70Pa.  should  be  made  or  not,  he  must 
St.  325;  Jones  vs.  Marks,  -40  111.  313;  exercise  his  discretion  before  .selling. 
1  Lindley  on  Company  Law  (5th  But,  having  determined  upon  a  sale 
ed.),  p.  511  et  seq.,  and  cases  cited;  he  has  exercised  his  discretion,  and 
Pulsifer  vs.  Shephard,  36  111.  513;  the  execution  of  the  order  involves 
Hollingshead  vs.  Green,  1  Cin.  no  discretion  whatever.  He  is  not 
Super.  Ct.  305;  13  Ohio  Dec.  Rep.  obliged  to  personally  make  the  sale, 
565.  Where  it  is  established  that  and  he  may,  for  that  purpose,  em- 
he  has  actually  made  the  sale  at  a  ploy  a  sul)-agent.  Sims  vs.  May,  16 
specified  price,  it  must  appear  that  N.  Y.  St.  Rep.  780. 


Dnty  of  Broker  to  Sell.  299 

ment.'  An  authority  to  sell  exists  until  countermanded  or 
revoked  by  implication ;  but  the  question  is  greatly  gov- 
erned by  usage  and  the  course  of  dealings  between  the  par- 
ties. Accordingly,  where  the  defendants,  Stock-brokers, 
were  carrying  certain  stock  for  plaintiff  on  margin  and  the 
latter,  on  Sept.  12,  1867,  wrote  to  them,  that  "in  case  the 
stock  should  look  like  reaction,  or  weaken,  or  have  a  down- 
ward look,  they  should  sell  for  him  50  or  100  shares,  as 
the  case  might  look ; "  to  which  letter,  two  days  later,  the 
defendants  replied  that  they  thouglit  the  market  would  re- 
cover from  its  present  depression.  On  Sept.  IT  the  plaintiff 
ordered  the  defendants  to  purchase  100  shares,  if  the  stock 
looked  like  rising.  On  the  ISth  the  defendants  bouirht  for 
the  plaintiff  50  shares,  and  on  the  20th,  the  market  falling 
rapidly,  they  sold  all  the  plaintiff's  stock  without  notice  to 
him.  Held,  that  the  direction  contained  in  the  plaintiff's 
letter  of  the  12th  was  not  revoked  by  what  subsequently 
took  place,  and  defendants  were  justified  in  selling  upon  the 
fall  in  the  market.^ 

Where,  however,  an  order  has  been  given,  in  writing, 
to  sell  stock  at  a  certain  designated  figure,  evidence  is 
admissible  to  show  that  the  written  ortler  was  subsequently 
modilied  by  an  oral  understanding.^  The  question  of  modi- 
fication or  waiver  is  for  the  jui-y.^     Parol  evidence  is  also 

•Smith  vs.  Tracy,  36  X.  Y.  70.  sale  of  tlie  .stock  witlunit  iiuMition- 

*  Davis  vs.  Gwynne,  4  Daly  CS .  iu-i  the  fif^iire,  and   the  broker  sub- 

Y.),  218;  afT'd  .57  N.  Y.  670.  se<iueiitly  sold  the  greater  part  of 

•Clarke  vs.  Meips,  10  Bosw.  (X.  the   stock    at    102,    and    svied    the 

Y.)  .337.     .\nd  where  it  appears  that  Client  for  the  Ios,s,  it  wa.s  held  error 

the  Client  verballv  rigree<l  with  the  to  exclude  evidence  of    the  verbal 

Broker's  clerk   U)  sell  certain  seen-  afjreement,  lus  part  only  of  the  con- 

ritif«  !it  10.')  or  within  a  small  frac-  tract    w:ih    in    the    written    order, 

tion  of  that  fiirnre,  but  the  written  Fisher  vs.  Moller,  17  .\   Y  Snpp  S31 
order  of  the  Client  merely  directed  a        ♦  Stone  vs.  I,:ithrop,  1U1>  Mass  (».'{. 


300  Stock-brokers  and  Stock  Exchanges. 

admissible  to  explain  a  Broker's  contract  for  the  sale  of 
stock,  acknowledging  the  receipt  of  the  first  payment  of 
the  margin.' 

A  Broker  is  not  authorized  to  sell  stock,  standing  in 
the  name  of  two  trustees,  upon  an  order  of  one  who  un- 
dertakes to  procure  his  co-trustee  to  join  in  the  transfer, 
unless  such  co-trustee  authorized  or  concurred  with  the 
other  in  making  the  transfer.^ 

If  the  P>roker  fails  to  sell  wlien  directed,  the  principal 
may  recover  back,  in  an  action  of  assumpsit  on  the  common 
counts,  the  margin  originally  deposited  by  him  with  the 
Broker.^ 

With  respect  to  the  terms  upon  wliich  the  Broker  is  au- 
thorized to  sell,  he  is  likewise  bound  by  the  direction  of  the 
Client.  If  no  directions  are  given,  he  is  entitled  to  make 
the  sale  in  accordance  with  the  general  usage  of  I>rokers.^ 

The  general  rule  is,  that  it  is  no  part  of  the  duty  of  a  sell- 
ing Broker  to  his  employer  to  procure  payment  of  the  i)rice, 

As  to  when  a  written  memoranduni  Williams   vs.    Aroiii,    35    La.    Ann. 

made  by  a  Broker  is  inadmissible.  1115.     If  the  sale  is  cancelled  i)y 

Gurley  vs.  McLennan,  17  App.  Cas.  the  Exchange  for  no  fault  of  the 

(D.  C.)  170.  Broker,  the  Client  cannot  hold  him 

*  Winans  vs.  Hassey,  48  Cal.  634.  for  damages  resulting  from  failure  to 

^  Leyton  vs.  Sneyd,  2  Moo.  583.  carry  out  the  sale.  Smith  vs. 
See  also  post,  "Joint  Adventures  in  Pryor,  26  N.  Y.  St.  Rep.  928.  As 
Stocks,"  p.  313.  In  England  it  has  to  the  effect  of  a  usage  of  the  Peoria 
been  held  that  upon  an  investment  Board  of  Trade,  see  Ilugg  vs.  Davis, 
of  capital  moneys  arising  under  the  15111.  App.  647.  Where  a  statute  in- 
Settled  Land  Acts,  a  tenant  for  life  validates  a  sale  of  stock,  \mle.ss  its 
is  not  entitled  to  direct  the  trustees  requirements  are  complied  with,  the 
to  employ  a  particular  Stock-broker  Broker  cannot  escape  responsiijility 
chosen  by  himself.  Re  Duke  of  in  loss  resulting  to  his  Client  by 
Cleveland's  Settled  Estates  (1902),  showing  a  custom  of  the  E.vchange 
2Ch.  Div.  350.  to  disregard  the  statute,  such  cus- 

'  Jones  vs.  Marks,  40  111.  313.  torn     being     illegal.     Neilson     vs. 

<Ch.    IV.,    "Usages."     See  also  James,  9  L.  R.  Q.  B.  D.  .SIG. 
Cothran    vs.    EUis,    107    111.    413; 


Duty  of  Broker  to  Sell.  301 

nor  to  procure  the  execution  by  the  purchaser  of  a  transfer 
of  the  j<hares,  nor  to  procure  the  registration  thereof.* 

But  this  question  is  greatly  influenced  by  usage,  especially 
as  to  the  duty  of  the  IJroker  to  receive  payment  for  the 
stock  sold  ;  and  we  understand  the  usage  of  "Wall  Street  to 
be  decidedly  in  that  way,  and  as  establishing  a  uniform 
and  unassailable  practice  on  the  jnirt  of  the  Broker  to  receive 
payment  for  securities  sold,  esi)ecially  as  the  latter  is  in- 
vested with  the  possession  of  the  stocks,  and  is  clothed  with 
the  apparent  ownership  upon  Avhich  purchasers  rely,  wdio  do 
not  even  know  the  principal.'  It  has  been  held,  however, 
that  a  Stock-broker  cannot  sell  upon  credit,  fur  that  is  not 
the  usual  course  of  his  business.^  And  where  it  appears  that 
stocks  are  usually  sold  for  cash,  the  Broker  is  liable  for  any 
loss  which  may  occur  by  his  selling  on  credit,  although  he 
may  have  been  acting  honafide^  and  with  the  object  of  bene- 
fiting his  principal.^ 

So  also  a  Broker  employed  to  sell  shares,  who  renders 
a  sales  note  to  the  purchaser  or  his  agent,  in  his  own  name, 
is  liable  as  a  princij)al,  although  known  to  be  a  Broker. 
Evidence  that  it  is  the  custom  in  the  place  where  the  trans- 
action is  made  to  send  in  Bn^ker's  notes  without  disclosing 
the  principal's  name  is  properly  rejected  ;  and  the  subsequent 


'  Booth    vs.    Fielding,    1    Week.  vs.  Delafield,  8  Paige  (N.  Y.),  527; 

Notes,  245;   Clark's  Law  of  Joint-  s.  c.  2G  Wend.  192. 
stock     Companies     (Scotch),     \Ar>;        Mirown   vs.   Doorman,    11   CI.   & 

Lindley  on  Company  Law  (5th  ed.).  Fin.  1.     But  see  as  to  Brokers  gen- 

p.  511.  erally,  wliero  iisa-^e  jnstifie.s  a  sain  on 

*  Clarke  vs.  .Meins,  10  Bosw.  (N.  crcKlit,  Coodenow  vs.  Tylor.  7  Milhs. 

Y.)  337.  30;  Clark  vs.  Van  Northwick.  IS  id. 

»2Kent'BComm.  1024,*022(lUh  3J3;  Van  .Mm    vs.  Vandnrpool.  0 

ed.),  note  (h);  Barinir  vs.  (V)rio,  2  B.  Jolins.  (N.  Y. )(>'.);  I)oTiKla.ss  vs.  Le- 

*  .\Id.  137,  1 13.  14H;  Wiltshire  v.m  land,  1  Wend.  (N.  Y.)  490. 
Sinrw,  1  Cimiplj.  258;  State  of  Illinnis 


302  Stock-brokers  and  Stock  Exchanges. 

rendering  of  a  different  note  describing  the  true  purchaser 
■will  not  alter  this  rule.' 

If,  however,  a  Broker  is  employed  to  sell  shares  at  a 
certain  llgure  and  he  does  so,  but  his  Client  refuses  to 
deliver  the  stock,  the  Broker,  who,  under  the  rules  of  the 
Exchange,  becomes  personally  liable  to  the  purchaser,  is 
entitled  to  go  into  the  market,  and  buy  the  shares  at  the 
best  price  possible,  and  if  at  a  loss,  he  may  recover  the  loss 
from  his  Client,  and  the  latter  cannot  say  that  he  was  not 
bound  to  deliver  the  stock  until  he  was  paid  the  price,  un- 
less it  should  appear  that  the  Broker  was  himself  the  pur- 
chaser.^ 

In  this  connection  a  practice  of  Wall  Street  should  be 
adverted  to  and  explained.  Frequently  a  Client  wishes  to 
limit  a  loss  upon  stocks,  in  which  case  he  gives  his  Broker 
what  is  called  a  "  stoj)  order ^"^  which  authorizes  and  directs 
the  Broker  to  sell  the  stocks  (or  to  buy  them  in,  as  the  case 
may  be)  w^hen  they  arrive  at  a  certain  price,  in  which  event 
the  Broker  must  sell  or  buy  when  the  price  reaches  his  limit ; 
with  this  reservation,  however,  that  the  price  at  which  the 
Broker  is  directed  to  sell  or  buy  must  be  made  by  some  third 
person.^     This  may  be  illustrated  by  the  following  example  : 

'  Magee  vs.  Atkinson,  2  M.  &  W.  represents  that  he  had.  In  re  Na.- 
440.  And  when  a  Broker  assumes  tional  Coffee  Palace  Co.,  Ct.  App. 
to  make  a  contract  on  behalf  of  a  Cli.  Div.,  Aug.  1883;  32  Weekly  Rep. 
principal  when  he  is  not  really  au-  236;  N.  Y.  Daily  Reg.  April  9,  1884, 
thorized  to  make  the  contract,  he  is  where  the  cases  upon  this  subject 
liable  in  damages  to  the  party  in-  are  referred  to. 
jured  by  his  assuming  to  have  au-  '  Baily  vs.  Camduff,  59  Pac. 
thority  even  although  he  does  so  by  Rep.  (Colo.)  407. 
mistake.  In  such  a  case  the  Broker  'Anderson's  Law  Diet.,  title 
warrants  that  he  has  authority  and  "  Order,"  p.  738;  Porter  vs.  Worm- 
thereby  contracts  that  he  has  au-  ser,  94  X.  Y.  431-443;  Campbell  vs. 
thority.  The  contract,  therefore,  is  Wright,  118  X.  Y.  594-598;  Wron- 
that  he  had  the  authority  which  he  kow  vs.  Clews,  20  J.  &  S.  178. 


Duty  of  Broker  to  Sell.  303 

If  A.,  being  the  owner  of  100  shares  of  New  York  Central 
K.  R.  stock,  should  direct  his  Broker  to  sell  the  same  when 
the  stock  should  reach  or  be  quoted  at  99,  in  this  event  it 
is  the  duty  of  the  latter  to  sell  at  that  price  ;  not,  however, 
until  some  other  Broker,  bv  a  distinct  transaction,  has  made 
the  stock  sell  at  99,  it  being  the  understanding  that  a  Bro- 
ker cannot  make  that  price  himself  by  the  sale  of  the  stock. 
If,  however,  the  Broker,  when  the  stock  reaches  99,  is  unable 
to  sell  at  that  price,  it  seems,  b}'  the  usage  of  Wall  Street, 
that  he  can  sell  at  the  next  figure  below  99. 

Conclusions  rather  antagonistic  to  the  above  view  seem  to 
have  been  drawn  in  the  case  of  Smith  vs.  Bouvier.*  In  that 
case  the  order  was  made  by  the  Client  in  a  transaction  in 
which  he  was  short  of  stocks,  and  was  as  follows  :  "  Buy  for 
my  account  2,000  shares,  Xew  York  Central,  at  166  ;  or,  in 
event  of  that  stock  going  against  me,  take  the  2,000  shares 
in  at  175."  A  Broker  testified  that "  take  in  "  means  to  buy. 
The  Brokers  acting  under  this  order  bought  in  the  shares  at 
an  average  of  174 1,  or  |  below  the  price  mentioned  in  the 
order.  The  question  was  squarely  raised  in  the  case  as  to 
whether  this  was  an  execution  of  the  oriier ;  and  the  court 
said  upon  tliat))oint,  in  charging  the  jury,  that  "  if  the  con- 
tract of  the  })laintiirs  with  the  defendants  was  an  al).si>lute 
one,  that  they  were  not  to  buy  in  the  stock  until  it  reached 
175  ;  and  if  the}'  had  no  discretion  in  the  premises  whatever, 
then,  of  course,  they  had  no  right  to  buy  it  at  a  less  price 
and  tlie  plaintiff's  tliird  point  would  be  well  tnkon  ;  but  is 
that  a  reasonable  supj)osition  '{  Is  that  the  contract  which 
was  entered  into?  Was  it  not  rather  tliat  the  j>laintifTs  (as 
one  of  the  Brokers  testified  to)  were  not  to  let  the  stock  go 

'  7(1  I'h  Si.   :V2r, 


304  Stock-brokers  and  Stock  Exchanges. 

beyond  175  before  buying  it  in  ?  unci  is  not  that  a  reasonable 
interpretation  of  the  written  order,  in  view  of  what  was 
plainly  the  interest  of  the  defendants,  and  of  what  occurred 
at  that  time  ? " 

It  will  be  seen  that  the  learned  judge  left  the  question  of 
the  construction  of  the  order  to  the  jury,  and  did  not  pass 
upon  it  himself.  The  jury  found  for  the  Brokers,  and,  on 
appeal,  the  decision  was  affirmed,  no  allusion  being  made  to 
tliis  important  question.  Although  the  act  of  the  Brokers 
in  "  buying  in  ''  the  stock  at  174|  might  have  been  advanta- 
geous to  their  Client,  it  was  not  in  accordance  with  the 
stop  order,  which  gave  them  the  right  to  act  only  when  the 
stock  reached  175.  As  we  have  seen,  an  agent  or  Broker 
must  obey  strictly  his  instructions,  and  it  is  no  answer  in 
his  mouth  to  say  that  by  disobeying  them  an  advantage 
accrued  to  his  principal.'  Suppose  the  stock  had  never 
reached  175,  but,  after  selling  at  17-t|,  it  declined  until  it 
reached  IGG  ?  Here  would  have  been  a  loss  to  the  Client 
from  which  it  seems  the  Broker  could  not  have  escaped 
responsibility  by  showing  a  sale  at  174|. 

Thus  in  a  later  case  a  stop  order  was  entered  to  buy  in 
or  cover  a  short  sale  at  t»3|,  which  price  was  never  actually 
realized.  The  Broker,  however,  bought  in  at  91|,  which  the 
Client  repudiated,  and,  the  price  then  rapidly  falling  to  87|, 
ordered  the  Broker  to  buy  in  at  that  price,  which  the 
Broker  refused  to  do,  setting  up  the  purchase  at  91 1,  as  the 
termination  of  the  transaction.  It  was  held  that  the  Client 
was  entitled  to  recover  the  amount  that  would  have  been 
reahzed  had  the  Brokers  made  the  purchase  at  87|  as  or- 


'  See   cases   cited    ante,    p.    205-    of  law.     Davis  vs.  Gwynne,  57  N. 
Construction  of  writings  a  question    Y.  676. 


Duty  of  Broker  to  Sell.  305 

dered,  and  that  Ins  right  to  order  a  purchase  at  that  price 
was  not  affected  by  the  unauthorized  sale  at  91|.  A  Client 
has  the  right  to  designate  a  limit,  at  wbich  the  transaction 
is  to  be  terminated,  within  that  which  his  margin  will 
cover/  and  a  sale  b}'  the  Broker  before  the  poiat  limited  is 
reached  is  unauthorized.'^ 

"Whei'e  a  principal  gives  his  Broker  orders  to  sell  gold 
for  him  if  it  reach  a  certain  price,  and  that  price  is  reached, 
and  the  Broker  does  not  sell,  but  holds  on,  hoping  in  good 
faith  to  realize  a  still  higher  price  for  his  principal,  which  is 
impliedly  assented  to  by  the  latter,  but,  owing  to  a  sudden 
fall,  a  sale  at  a  lower  price  is  finally  made,  the  Broker  is 
liable  only  for  the  actual  loss  sustained.  He  cannot  be 
charged  with  any  loss  from  a  neglect  to  sell  at  the  highest 
point  reached.^  In  England  it  has  also  been  held  that  an  order 
to  sell  stocks  at  a  particular  price  must  be  obeyed  when  the 
stock  reaches  that  price,  and  if  the  Broker  did  not  sell 
wlien  lie  might  have  done,  he  would  in  equity  be  held  to 
have  made  the  stock  his  own  from  that  time  and  ordered 
to  account  to  liis  Client  at  the  price  named.^ 


'  Campbell  vs.  Wright,  118  N.  Y.  N.  Y.  535,  and  for  construction  of 

594;   reportcii   below,   8   X.   Y.  St.  stop  order  to  sell  bonds  "at  100} 

Hep.  474.  and  1004  ex-coupons  and   accruetl 

'  Cam  pi  jell    vs.     Wright,    supra;  interest,"  see  Porter  vs.  Worniser, 

Porter  vs.  Wormser,  94  X.  Y.  431 ;  94  X.  Y.  4.31,  where  it  wius  held  that 

Gould  vs.  Tra^jk,   10   X.   Y.  Supp.  the  sale  was  authorized  when  such 

619.     A  stop  order  may  describe  the  bonds  had  sold  in  the  market  for  a 

price  limited  by  referrinj^  to  condi-  flat  price  wliich  after  deduction  of 

tions  and  continf^encies.     It  is  not  the  coupons  aiul   accruetl   interest 

essential    that   a   definite   price   be  would  leave  the  (i^ure  at  which  the 

named.     Wronkow  vs.  Clews,  20  J.  sale  luul  l>een  ordered. 

AS.  17<».      For  cc)nstructi<in  (»f  stop  'Hope    vs.    Lawrence,    50    Harl». 

order  where  Hroker  is  instnwtc<l  to  258. 

sell  when  rnart'in  should  f.ill  below  •  Bertram  vs.  Godfray,  1   Knapp 

6  per  cent,  w.-e  Wicks  vh   llal.li,  <i'_'  P.  C.  :iSl. 
20 


306  Stock-brokers  and  Stock  Exchauges. 

Keceipt  by  the  Client  of  dividends  on  the  stock  after  the 
limit  of  a  stop  order  to  sell  had  been  reached  to  his  knowl- 
edge would  be  evidence  of  a  waiver  of  the  stop  order.' 

The  term  "  stop  order  "  may  be  used,  of  course,  in  other 
then  its  ordinary  sense.  Thus  when  a  Broker  writing  to 
his  Client,  then  abroad,  for  margin,  adds,  "  in  the  meantime 
we  enter  stop  order,"  the  term  may  not  have  its  ordinary 
meaning,  but  that  the  Broker  will  stop  entirely  and  hold 
the  transaction  in  statu  quo  till  he  hears  from  his  Client.^' 

When  therefore  the  Broker  in  his  letter  of  May  12th, 
quoted  the  price  of  certain  stock  at  105|,  and  requested 
further  margin,  and  the  Client  on  jNlay  2-ith  cabled  the 
Broker  to  sell  such  stock,  which  the  Broker  did  the  same 
day  at  95,  it  was  held  that  the  Client  could  not  make  the 
Broker  liable  for  the  difference.^ 

TI.  Special  Contract   with  Client — Joint  Adventures  in 

Stocks. 

But  the  usual  and  customary  obligations  of  a  Broker  may 
be  varied  and  controlled  by  special  agreement  with  his 
Client,  it  being  established  that  the  former  may  by  special 
contract  limit  his  liability  in  any  i-espect.^ 

'  Bertram  vs.  Godfray,  supra.  of  the  stop  orders  had  been  reached. 

'  Wronkow  vs.  Clews,  20  J.  &  S.  And  see  also  Harris  vs.  Pryor,  18 

176.  N.  Y.  Supp.  12S,  where  although  the 

^  Id.      Compare    this    case    with  Client  authorized  stop  orders  at  1 

Gould  vs.  Trask,   10  N.  Y.  Supp.  per    cent    above    the    market,  the 

619,  in  which  case  the  Brokers  noti-  Brokers  were  held  justified  in  clos- 

fiied  their  Clients  that  they  would  en-  'uv^  at  their  own  stop  order  of  half 

ter  a  "stop  order"  the  next  day,  on  a  point  from  the  market,  when  they 

securities  carried  by  them  on  mar-  did  not  agree  to  the  stop  order  of 

gin,     at     certain     specified    prices,  the  Client,  who  had  failed  to  furnish 

meaning    that    unle.ss    the    Client  margins. 

meanwhile  deposited  sufficient  mar-        *  Milliken   vs.   Dehon,    27    X.    Y. 

gin  the)'  would  sell  when  the  limit  364;  Baker  vs.  Drake,  66  id.  518; 


Special  Contract  with  Client.  307 

In  the  case  of  Milliken  vs.  Dehon  ^  special  authority  was 
given  to  sell  cotton  "  at  public  or  private  sale  or  otherwise, 
at  his  option,  for  the  most  that  it  would  bring."  The  court 
held  that  such  a  contract  authorized  the  pledgee  to  sell  at 
private  sale  without  notice,  and  nioditied  the  ordinary  rights 
of  a  pledgor  to  have  notice  of  the  time  and  placed  of  sale ; 
and  that  these  general  rules  could  be  legally  modified  or 
waived  by  agreement.  To  the  same  effect  was  Baker  vs. 
Drake,^  where  it  was  held  that  by  a  special  contract  a 
Ghent  might  agree  that  his  business  should  be  conducted  in 
accordance  with  the  usage  of  a  particular  office,  and  that 
if  such  usage  justified  a  sale  of  stocks  where  the  margins 
were  exhausted,  without  notice,  the  Client  would  be  bound 
thereby.  But  a  provision  in  an  agreement  of  pledge  by 
which  the  pledgor  waives  notice  of  sale  is  not  a  waiver  of 
demand  of  payment  before  sale.^ 

"Wicks  vs.  Hatch  '  is  another  case  illustrating  a  dealing 
where  there  was  a  special  contract.  In  that  case,  it  ajipeared 
the  plaintiff  executed  to  G.  A.  "W.  a  power  of  attorney  em- 
jx)wering  him  to  buy  and  sell  gold,  stocks,  and  bonds,  and  to 
execute  for  her,  and  in  her  name,  "  all  orders,  checks,  or  other 

Markham  \s.  Jaudon,  41  id.  23.5,  at  cided;  see  also  Wilson  vs.  Little,  2 

p.  244;  Wicks  vs.  Hatch,  (i2  id.  .5.35;  N.  Y.  443.     .\n  aRreeinent  to  carry 

Stenton    vs.    Jerome,    .54    id.    480;  wheat  until  a  specified  <latc  witiiout 

Hyatt    vs.    .Argenti,     3    Cal.    151;  further  inar^xin,  no  side  to  he  inado 

Robinson  vs.   Norris,   51   How.   Pr.  until  ordered  by  the  Client,  doiis  not 

(N.  Y.)  442;   aff'd  G  Hun  (.\.  Y.),  mean  tliat  tlie  wheat  is  to  be  carried 

233.  inilefiiiitely  without  further  margin 

'  27  .N".  Y.  301.  until  such  time  jls  the  Crieiit  orders 

'  60  id.  518.  a  sale,  l)<jt  .simply  that  a  sjde  could 

'  Cortclyou    vs.    Lansing,    2   Cai.  not  be  made  i)rior  to  the  specific*! 

(N.  Y.)  Cujs.  200;  see  as  to  this  case  date    without    his   order,     .\mjklen 

Barrow  vs.  Paxton,  5  Johns.  i\.  Y.)  vs.  Jacobs,  75  Hun,  31 1 . 

200,   by   which   it   is  explained   by  MJ2  .\.  Y.  535;  afT'g  0  J.  A  S.  (N. 

Kent,  Ch    J  ,  that  it  wai  never  de-  V.)  96. 


308  Stock-brokers  and  Stock  Exchanges. 

instruments  in  writing  whatsoever/'  which  might,  in  his  dis- 
cretion, be  necessary  in  the  business,  with  power  of  substitu- 
tion, etc.  G.  A.  "\V.  employed  defendants  as  Brokers,  deposit- 
ing- a  sum  as  a  margin.  He  gave  to  them  a  writing  signed 
by  him,  as  attorney  for  phuntitf,  autliorizing  them  to  sell,  in 
their  discretion,  at  public  or  private  sale,  without  notice,  the 
stocks  which  they  might  be  carrying  for  her,  whenever  the 
margin  should  fall  below  5  per  cent.  In  an  action  to  recover 
damages  for  sales  made  at  the  Board  of  Brokers  in  pursu- 
ance of  this  authority,  defendants  set  up  as  a  counterclaim 
a  deficiency  arising  on  the  sales  after  exhausting  the  margin. 
The  court  held  that  it  was  within  the  authority  of  G.  A.  AV. 
to  execute  the  writing,  and  defendants  were  authorized  to  sell 
at  the  Board  of  Brokers  without  notice,  when  in  good  faith, 
and  in  the  exercise  of  a  sound  discretion,  the}'^  deemed  the 
state  of  the  market  justified  it;  that  plaintilf  was  liable  for 
any  loss  on  sales  beyond  the  amount  of  the  nuirgin  ;  and  that 
the  same  wasproper  as  a  counterclaim.  The  court  charged, 
among  other  things,  that  defendants  had  a  right  to  sell  when 
the  market  rendered  it  prudent,  either  for  the  benefit  or  pro- 
tection of  their  principal  or  for  their  own  pi-otection.  Held, 
no  error,  that  from  their  peculiar  relations  as  Brokers,  hold- 
ing stock  paid  for,  mainly  out  of  their  own  funds,  defendants 
were  authorized  to  act,  and  necessarily  in  making  sales  acted, 
for  the  protection  of  their  own  interest  as  well  as  that  of 
their  principal. 

The  case  of  Harris  vs.  Tumbridge  ^  illustrates  a  special 
contract  with  Brokers  growing  out  of  a  "straddle."  In 
that  case,  the  plaintiff  purchased  through  defendant,  a 
Broker,  a  60  days'  "  straddle" — viz.,  a  contract  by  which  the 

»  8  Ab.  New  Cas.  291;  aff'd  S3  N.  Y.  92. 


Special  Contract  with  Client.  309 

plaintiff  bad  the  option  to  either  receive  or  deliver  100  shares 
of  Lake  Shore  stock  at  62|  for  sixty  days,  the  defendant 
further  iruarauteeino'  that  the  stock  should  iluctuate  at  least 
S  per  cent.  The  "  straddle"  remained  in  the  hands  of  the 
defendant.  The  day  after  the  making  of  this  contract,  the 
defendant,  without  express  authority,  sold  "  short  '' '  100 
shares  of  Lake  Shore  stock  against  the  "  straddle,''  and  closed 
out  the  contract  eventually  at  a  loss  to  the  plaintiff. 

Immediately  after  the  contract,  Lake  Shore  began  to  ad- 
vance in  price,  and  reached  T3|  a  short  time  afterwards. 
The  plaintiff,  in  an  action  on  the  "  straddle,"  recovered  a 
judgment ;  and  the  court  held  that  the  subsequent  action 
of  defendant  in  purporting  to  sell  "  short  "  against  the 
"straddle  '■  was  nugatory.  It  was  his  duty  to  have  closed 
the  "  straddle  "  contract  by  exercising  the  option  at  a  most 
favorable  time  within  the  sixty  days ;  and  a  failure  to  do  so 
made  him  liable  for  what  plaintiff  lost  by  his  neglect,  and 
that  this  result  could  not  be  affected  by  an  alleged  custom 
of  Brokers  not  known  to  the  plaintilT. 

And  where  a  Client,  at  the  commencement  of  his  dealings 
with  a  firm  of  Brokers,  deposits  with  them  money  with  an 
order  to  purchase  stocks  on  his  account,  and  receives  from 
them  an  agreement  for  his  signature,  saying  "  AVe  herewith 
enclose  our  usual  customer's  agreement  f(jr  your  signature," 
and  he  signs  and  returns  the  same  to  them — which  agree- 
ment authorizes  the  Brokers  to  sell,  at  their  discretion,  at 
the  Brokers'  Board  or  elsewhere,  or  at  public  or  privatc^salo, 
with  or  without  advertising,  and  without  ])rior  demand  of 
any  kind,  upon  a  notice  to  the  T'lient  of  the  time  and  place 
of  sale,  of  all  or  any  gold,  stocks,  pr<>|)(Mty,  things  in  action, 
or  collateral  sociiritios  luld  by  thcin  aii<l  iHlon^ring  to  th(< 
Client — th(;  latter  is  bound  by  tin-  tn-ms  of  the  agreement  ; 


310  Stock-brokers  aud  Stock  Exchauges. 

and  would  have  been  bound,  though  he  had  never  signed  it 
or  given  any  assent  to  it,  if  he  subsequently  gave  orders  un- 
der it.' 

But  where  there  is  a  special  contract  in  writing  between 
the  Brokers  and  their  Client,  by  which  the  ordinary  prin- 
ciples applicable  to  such  a  relation  are  set  aside  or  modified, 
and  the  dealings  under  such  contract  being  full}'  closed,  new 
transactions  are  subsequently  entered  into,  the  former  writ- 
ten contract  will  not  apply  unless  the  parties  have  specially 
agreed  thereto. 

In  Bickett  vs.  Taylor^  the  Client,  in  November,  1870, 
signed  a  written  agreement  in  respect  to  certain  stock  trans- 
actions between  him  and  the  Brokers.  This  agi-eement 
clothed  the  Brokers  wnth  the  greatest  possible  })ower  with 
respect  to  the  use  and  sale  of  the  stock,  and  subjected  the 
Client  to  the  most  stringent  obligations  to  keep  his  margin 
at  all  times  at  10  per  cent.  The  transactions  under  this 
agreement,  and  the  accounts  in  respect  to  them,  were  full}' 
closed.  More  than  two  years  afterwards  the  Client  bought 
stock  through  the  Brokers,  which  the  latter  sold  without 
notice  for  default  of  Client  to  keep  up  margins.  Held,  that 
evidence  on  the  part  of  the  Client  to  show  that  the  former 
written  contract  was  not  applicable,  but  had  been  superseded 
b}'  an  oral  arrangement,  was  proper,  and  the  question  should 
have  been  submitted  to  the  jury.  The  court  was  inclined  to 
the  opinion,  that  under  the  circumstances,  as  inatter  of  law, 
the  previous  written  contract  was  ended,  and  did  not  apply 
to  a  fresh  dealing  between  the  parties.^ 

'  Robinson  vs.  Norris,   51   How.  peals  sub   nom.  Burkitt  vs.  Taylor, 

Pr.  (N.  Y.)  442;  aff'd  6  Hun  (N.  Y.),  13  W.  D  75,  where  the  above  views 

233.  were     fully     sustained.     See     also 

*  55  How.  Pr.  (N.  Y.)  128.  Winans  vs.  Hassey,  48  Cal.  634. 

'  See  this  case  in  Court  of  Ap- 


Special  Contract  with  Client.  311 

Special  agreements  between  the  Broker  and  the  Client 
are  sometimes  made  whereby  the  former  agrees  to  re- 
purchase from  the  Ghent  the  securities  bought  for  him, 
on  certain  contingencies,  usually  that  of  the  Ghent's  dissat- 
isfaction. Such  a  contract,  either  between  Broker  and 
Client  or  vendor  and  vendee,  is  not  a  contract  for  the  sale 
of  good,  chattels,  or  things  in  action,  within  the  Statute  of 
Frauds,  but  is  a  provision  for  the  rescission  of  the  entire 
contract,  and  is  valid  though  oral.'  A  party  does  not  di- 
vest himself  of  an  option  to  return  purchased  securities 
at  cost  price  by  selling  them  again  with  the  same  option 
to  his  vendees,  whicli  is  exercised.^  "Where  the  agreement  to 
re-purchase  is  without  express  limit  as  to  time,  and  is  there- 
fore to  be  construed  as  running  fur  a  reasonable  period,  a 
delay  not  demanding  a  re-purchase,  in  one  case  of  three  years, 
and  in  another  of  nearly  two  years,  in  both  cases  the 
vendor  having  in  the  interim  repeatedly  urged  the  vendee 
to  keep  the  securities,  was  held  not  to  be,  as  matter  of  law, 
an  unreasonable  length  of  time.^ 

"When  an  option  contract  provides  that  notice  of  intention 
to  require  performance  of  the  contract  of  repurchase  is  to  be 
given  on  a  specified  day,  it  must  be  given  on  that  day,  al- 

'  Johnston  vs.  Tnisk,   110  X.  Y.  a  promise  to   answer  for   the  debt, 

136,  and  cases  tliere  cited;  Wooster  etc.,  of  another  siiould  l)e  in  writing, 

vs.  Sa^e,  07  X.  Y.  67.     Xor  is  an  Green  vs.  Brooliins,  23  Mich.  48. 

oral  contract,  whereby  a  promoter  '  Wooster  vs.  Sage,  07  X.  Y.  67. 

of   a   company    promised    plaintiff  As    to    meaning    of   agreement    to 

that  if  the  latter  would  take  two  "make  good"  amount  advanced  on 

shares  in  the  company  and  give  liis  purchjwc  of  stock,  see  Uowley   vs 

promi.s.s^iry  note  therefor,  the  former  Swift,  07  Ilun,  95. 

would    fnid   some   one   to   take   the  'Johnston  vs.  Tnusk,    110   .N     ^' 

shares  r)ff  the  hands  of  pluintiff  who  1.30;  Wooster  vs.  Sage,  07  X.  Y.  07. 

would  not  ho  put  tr)  any  expense  in  .As   to    transactions    between    part- 

the  matter,  within  the  provision  of  ners,   see    Worn    vs.    Kry,    SI    Cal. 

the  Statute-  of  Fraudii  declaring  that  Z'iO. 


312  Stock-brokers  and  Sfock  Exchsiiii^es. 

though  n  holi(hiy  other  than  iSuiulay,  as  the  Holiday  Acts 
do  not  affect  such  a  transaction,  otherwise  the  contract  will  be 
deemed  to  be  at  an  end,  and  it  cannot  be  enforced  in  the 
absence  of  evidence  of  an  agreement  reviving  it  or  mak- 
ing a  new  contract  with  reference  thereto.'  And  a  tender 
of  the  stock,  and  an  offer  to  transfer  the  same,  must 
furthermore  be  made  on  the  day  when  performance 
is  due,^  unless  the  court  can  say  under  all  the  circum- 
stances that  time  was  not  of  the  essence  of  the  contract, 
in  which  case  tender  within  a  reasonable  time  will  suffice.^ 
But  a  repudiation  of  the  contract  before  maturity  dis- 
penses with  the  necessity  of  tender,  and  the  production 
upon  the  trial  of  the  securities,  and  an  offer  to  deliver 
over,  is  enough/ 

The  vendee  is  not,  upon  the  trial,  bound  to  prove  any 
damages,  the  obligation  of  the  vendor  being  to  repurchase 
the  securities  or  to  refund  the  cost.  It  may  be  that 
when  the  vendor  refuses  to  accept  a  return,  the  vendee 
may  dispose  of  the  property  and  sue  for  the  deficiency. 

If  the  securities  consist  of  coupon  bonds,  and  any  of  the 
coupons  are  removed  by  the  vendee,  they  must  be  de- 
ducted out  of  the  purchase-money,  but  any  profit  in  the 


*  Page  vs.  Shainwald,  169  X.  Y.  made,  which  non-residence  also  ex- 

246.     If   the    option   is   to    repur-  isted  at  the  time  the  acxeement  was 

chase  at  the  end  of  one  year  after  entered  into,  does  not  dispense  with 

thirty  days'  notice,  it  is  not  neces-  the   malcing  of  the  tender.     Ibid, 

sary   that   such    notice   should   be  See,  however,  George  vs.  Braden,  70 

given  thirty  daj'S  before  the  expira-  Pa.  St.  56. 

tion  of  the  j^ear.     A  notice  any  time  ^  Duchemin     vs.     Kendall,     149 

within  the  year  is  sufficient.     Ma-  Mass.  171.     If  a  certificate  has  no 

guire  vs.  Halsted,  IS  -\pp.  Div.  228.  value,  tender  at  the  trial  is  sufficient. 

2  Taylor  vs.   Blair,   30  X.  Y.  St.  Lewis  vs.  Andrews,  127  X.  Y.  673. 

Rep.   .i2S.     Mere  non-residence  of  *  Masruire  vs.   Halsted,    18   App. 

the  party  to  whom  tender  is  to  be  Div.  228. 


Joint  Adventures  in  Stocks.  813 

transaction   stands  on  a  different   footing,  and   cannot  be 
regarded  as  any  part  of  the  property  to  be  returned.^ 

Joint  AdrentiD'cs  in   Stocks. 

There  are  a  few  cases  which  ilhistrate  a  dealing  in  securi- 
ties for  specuhition  on  joint  account  or  for  the  joint  benefit 
of  the  parties  engaging  therein. 

It  is  not  an  unconiraon  occurrence  in  stock  operations  for 
the  joint  account  of  two  or  more  persons,  for  one  of  the  par- 
ties to  furnish  the  "  information/'  or  facts,  upon  which  the 
transaction  is  made,  and  the  other  person  to  contribute  the 
capital  or  means  to  can  y  on  the  operation.  And  the  courts 
have  held,  that  the  contribution  of  information  which  is  used 
as  a  basis  for  operations  in  stocks  is  a  sufficient  consideration 
for  an  agreement  to  give  the  party  furnishing  the  same  an 
interest  in  the  profits  of  the  transaction. 

In  the  case  of  White  vs.  Drew^  the  plaintiff,  being  in  pos- 
session of  valuable  information  in  relation  to  a  certain  stock, 
which  he  proposed  to  impart  to  defendant  upon  condition 
that,  if  defendant  should  consider  itsulKciently  important  to 
warrant  his  acting  upon  it,  Ije  (defendant)  should  hold  5(»00 
shares  of  such  stock  at  cost  for  plaintiff's  account  and  at  his 
risk,  and  subject  to  his  orders  for  a  period  of  sixty  or  ninety 
days,  to  which  defendant  assented,  and  thereupon  phiintiff 
imparted  said  inf<jrmation,  which  defendant  accepted  and 
acted  upon,  pronouncing  it  the  best  "  point''  lie  had  lu  aid 
of  in  along  time,  the  coui-t  h(*ld  that  tht;  mouKMit  the  in- 
formation was  given,  and  the  transaction  assented  to  l)y  de- 
fendant, it  was  an  ex<M;uted  ((jntract,  and  the  defendant  bore 
the  same  relation  to  the  plaintiff  in  regar<l  to  this  stock  as 

•  Woortcr  v«.  SaKc,  67  N   Y  r,7  '  .W  Ildw    I'r.  (N.  Y.)  53. 


314  Stock-broktM-s  sind  Stock  Exchanges. 

Stock-brokers  ordinarily  l)ear  to  Clients  for  whom  they  are 
carrvinc  stocks.  The  rule,  that  where  one  offers  a  reward 
for  information  he  is  bound  by  his  contract  to  the  one  who  re- 
sponds to  his  offer,  apj)lies  with  equal  force  to  the  case  where 
information  is  proffered  by  one  and  accepted  by  another 
under  a  contract  by  him  to  carry  certain  stocks  for  the  benefit 
and  profit  of  the  party  imparting  the  information.  And  re- 
liable information,  as  to  facts  upon  which  the  future  piice  of 
a  stock  will  depend,  is  a  sufficient  consideration  to  uphold  an 
agreement  or  contract  in  relation  to  such  stock.  Such  in- 
formation, the  court  said,  being  concededly  of  great  value, 
is  just  as  effective  to  take  the  case  out  of  the  statute  of 
frauds  as  if  a  cash  payment  had  then  been  made.^ 

In  Marston  vs.  Gould  ^  the  parties  engaged  in  a  joint  ad- 
venture in  the  purchase  and  sale  of  stock,  under  an  agree- 
ment, by  Avhich  defendant  was  to  furnish  the  funds,  and  to 
bear  the  loss  if  the  operations  should  result  in  loss ;  the  net 
profits,  if  any,  to  be  divided  in  certain  proportions.  No  pro- 
vision was  made  fixing  a  limit  of  time  for  the  continuance 
of  the  operations,  or  for  closing  them  and  settling  the  ac- 
counts. The  courts  held  that  the  arrangement  was  termi- 
nable at  any  time  at  the  will  of  either  of  the  ])arties,  and  that 
either  could  maintain  an  equitable  action  against  the  other 
for  an  accounting  or  for  the  adjustment  of  losses  sustained 
by  the  misconduct  of  the  other,  without  regard  to  the  ques- 
tion whether  or  not  they  were  to  be  regarded  as  partners  inUr 
sese.  By  arrangement,  the  Brokers,  through  whom  the  joint 
operations  were  conducted,  kept  the  account  thereof  under 

1  56  How.  Pr.   (N.  Y.)  53.     In-  eration  for  a  promLse  to  divide  such 

formation  furnished  by  one  Broker  commissions.     McLaughlin  vs.  Bar- 

which  enables  another  to  effect  a  nard,  2  E.  D.  Smith,  372. 

sale  or  purchase  and  thereby  earn  ^  69  N.  Y.  220. 
commissions  is  a  sufficient  consid- 


Joint  Advoiitiires  in  Stocks.  315 

the  letter  "  M."  By  direction  of  defendant  this  account 
was  closed,  and  the  stock  on  hand,  purchased  under  the 
ao^reement,  was  transferred  to  his  individual  account.  It 
did  not  appear  that  the  certificates  of  the  stock  were  dis- 
turbed. In  January,  1872,  there  was  a  sudden  rise  in  the 
market,  when  plaintiff  made  a  formal  call  upon  defendant  to 
sell  the  stock  and  account  to  plaintiff  for  his  portion  of  the 
profits  ;  and,  upon  his  failure  to  comply,  brought  this  action. 
Upon  the  trial,  defendant  offered  to  prove  that  he  sold  all 
of  the  stock  held  on  "  M  "  account  before  January  9,  1872. 
This  was  excluded  solely  because  not  connected  with  an 
offer  to  prove  that  the  sale  was  made  avowedly  on  joint 
account.  Held,  error  ;  that  if  defendant  had  authority  to 
sell,  it  was  not  necessary  to  make  known  at  the  time  of  the 
sale  that  it  was  made  on  joint  account;  and  if  he  made  the 
sale  in  good  faitli  in  the  ordinary  way,  ])laintiff  was  bound.^ 
So  in  an  action  for  an  accounting  on  the  purchase  of  stock, 
where  the  only  question  between  the  parties  is,  whether  the 
purchase  was  joint  or  several,  and  the  testimony  is  conflict- 
ing between  them,  the  point  will  be  considered  settled  in 
fav(;r  of  the  plaintiff,  as  a  joint  purchase,  where  it  appears 
that  the  defendant  had  previously  rendered  an  account  to 
the  plaintiff  for  the  hitter's  share,  adding  interest  and  com- 
mission to  that  date,  stating  that  the  purchase  was  joint 
and  containing  the  actual  interest  of  each  of  them  in  the 
enterprise.' 

'69  N.  Y.  220.  tifT  to  recoive  a  spocifiod   ainoimt 

'Crosby  vh.  Watts,  49  How.  Pr.  tlicrcof.     In   an   action    to   coinpel 

(N.  Y.)  3GI;  alT'd    11    .\.  V.  Supi-r.  .Hpccific    performance,    held    that    a 

Ct.  208.     And  where  phiiiitifT  with  Irast  wius  created,  involving  an  oh- 

otherH,  advanced  a  Huin  of  money  to  huation   to   use  the   fnndH   for  the 

defendant  to  be  u»e<l  in  purcha-ninK  purpose  for  which  they   were  Hiib- 

certain  Htorks  anrl  botuN,  the  plain  srril)e(|,  wiiich  the  dcfrndant  could 


81G 


Stock-broktM-s  and  Stock  Exchanges. 


Under  an  agreement  tor  a  joint  venture  in  stock,  to  be 
licld  by  one  party  for  thirty  days,  the  other  part}'  to  bear 
all  the  loss,  if  any — held,  that  the  former  could  not  recover 
the  deliciency  on  a  decline  in  ])rice  without  proving  an  actual 
sale  at  a  loss  within  thirty  da3's.' 

So  in  an  action  on  an  agreement  to  pay  a  certain  portion 
of  the  profits  of  a  joint  adventure,  upon  condition  that  in- 
formation furnished  by  the  plaintiff  should  prove  true,  the 
burden  of  proof  is  on  the  plaintiff  to  show  that  the  infor- 
mation was  true  ;  although,  if  there  were  no  such  expressed 
condition,  the  burden  would  be  upon  the  defendant  to  prove 
falsity,  if  he  relied  upon  that  defence.- 


not  avoid  by  showing  that  he  chose 
to  use  his  own  funds,  and  purchase 
for  himself;  that  the  transaction 
was  not  avoided  by  the  statute  of 
frauds;  and  plaintiff  was  entitled  to 
a  transfer  of  the  portion  which  fell 
to  him  according  to  his  subscrip- 
tion. Johnson  vs.  Brooks,  46 
Super.  Ct.  (J.  &  S.)  13.  But  if  the 
plaintiff  upon  the  joint  adventure 
has  received  the  money,  bought  and 
sold  the  stock,  and  holds  the  pro- 
ceeds, he  cannot  sustain  an  action 
for  an  accounting.  Conger  vs.  Jud- 
son,  N.  Y.  L.  J.  August  1,  1901. 
The  trust  relation  must  be  estab- 
lished and  that  defendant  received 
plaintiff's  money,  Schantz  vs. 
Oakman,  1G3  X.  Y.  148,  and  the 
burden  is  upon  defendant  to  show 
that  his  triLst  has  been  performed. 
Marvin  vs.  Brooks,  94  X.  Y.  71. 
The  judgment  should  be  against  all 
jointly  liable,  although  some  were 
not  served  with  process.  Stem- 
berger  vs.  Bemheimer,  121  N.  Y. 
194. 


*  Monroe  vs.  Peck,  3  Daly,  128. 

-Strong  vs.  Place,  4  Robt.  385; 
s.  c.  33How.  Pr.  (N.  Y.)  114.  The 
case  of  Luders  vs.  Rasmus,  14 
X.  Y.  W.  D.  221,  also  arose  out 
of  joint  adventures  in  stock. 
The  plaintiff  agreed  with  de- 
fendants to  purcha.se  bonds  and 
stocks  for  them,  he  to  receive  one 
third  of  the  net  profits  and  be 
chargeable  with  one  third  of  the 
losses  thereon.  Certain  bonds  pur- 
chased by  him  turned  out  to  be 
counterfeits;  the  loss  thereon  was 
afterwards  partially  made  good  and 
plaintiff  was  credited  with  one 
third  of  the  net  amount  received. 
The  agreement  was  thereafter  mod- 
ified so  that  plaintiff  could  only 
draw  a  certain  amount  of  his  share 
of  the  profits  per  month,  the  excess 
to  be  applied  on  the  charge  for  loss. 
The  following  year  plaintiff  left  the 
business.  In  an  action  to  recover 
an  amount  alleged  to  be  due  him, 
held,  that  plaintiff  having  aban- 
doned the  means  provided  by  the 


Joint  Adventures  in  Stocks.  317 

An  interesting  Ciise  upon  the  question  of  the  right  to  par- 
ticipate in  the  profits  of  certain  stock  is  that  of  Jones  vs. 
Kent.'  In  that  case  defendant's  intestate  gave  to  the  plaintiff 
a  paper  containing  these  words  :  ''  deceived  of  J.  'NV.  Junes, 
by  agreement,  one  thousand  shares  of  St.  Joe  Lead  stock,  for 
which  I  paid  him  $3000.  The  understanding  is  that  I  am  to 
give  said  Jones  one  half  of  whatever  price  the  same  is  sold 
for,  when  sold,  over  and  above  that  sum."  "Whereupon  the 
stock  was  delivered  by  plaintiff.  The  latter  brought  an  ac- 
tion to  enforce  the  trust,  the  stock  having  increased  very 
much  in  value ;  and  the  C(  »urt  below  held  that  the  instrument 
expressed  an  absolute  purchase  and  sale  free  from  any  trust, 
and  gave  exclusive  discretion  or  option  to  the  buyer  as  to 
whether  he  would  sell,  and,  if  so,  when,  subject  only  to  the 
obligation  to  pay  over  one  half  of  any  excess  in  case  he  should 
choose  to  sell,  and  should  sell  at  an  advance.  The  Court  of 
Appeals  reversed  this  ruling,  and  decided  that  it  was  apparent, 
from  an  inspection  of  the  writing,  that  the  last  clause  was  an 
inducement  of  the  sale  and  part  of  the  consitleration  thereof ; 
and,  the  party  making  the  instrument  having  died,  his  repre- 
sentatives would  be  compelled  to  carry  the  same  into  effect; 
but  that  plaintiff  could  not  I'ecover  any  tlividends  or  other 
income  received  by  defendant's  intestate,  the  contract  not 
covering  the  same.  A  portion  of  the  stock,  however,  had 
been  exchanged  into  i)onds  of  the  same  company,  and  il  was 
held  that  plaintiif  wius  entitled  to  onehidf  interest  in  the 
avails  of  the  same,  after  dtMlu(;ting  any  money  paid  to  com- 
plete the  conversion  oi  tlui  stock  into  bonds. 

nKxlifiwl  atrr«Tmoiit  for  payini:  tlu;  simre  of  llic  hiifaticc  of  loss  wfia  ro- 

halaiice  duo  from  him  I)y  tin-  appli-  (•ov«'ral)r('  l)y  ilcfciidaiits  I)y  way  of 

ration    of    th«-    Huriiliis    jirolits,    hw  rountcrflaiiii 
ori^'iiial    liahilitv    revived    and    his        '  HO  N.  V   ^.O,  rev'g  13  J.  i^-  S   00. 


318  Stock-brokers  jiiul  Stock  Exchaupes. 

The  court  did  not  pass  upon  the  question  whether  the  intes- 
tate hail  the  right  to  choose  the  time  of  sale,  so  that  this  dis- 
cretion could  not  be  interfered  with  by  the  plaintiif.  It 
^voul(l  seem,  however,  that  such  agreements  are  to  be  con- 
strued according  to  the  circumstances  of  each  case,  and  that 
no  general  rule  can  be  laid  down.  But  it  is  clear  that  the 
party  possessing  the  discretion  cannot  seek  to  exercise  it  un- 
reasonably against  the  other  party  to  the  agreement. 

So  in  an  action  to  recover,  with  dividends,  certain 
shares  of  telegraph  stock,  claimed  to  be  in  defendant's 
hands,  and  to  belong  to  plaintiff,  as  assignee  of  S.  &  Co., 
it  appeared  that  in  March,  1854,  the  stock  Avas  placed  in 
defendant's  hands,  under  a  contract  that  he  was  to  do  the 
best  he  could  with  it,  "  and  to  have  one  half  of  the  proceeds." 
At  that  time  the  stock  was  comparatively  worthless.  De- 
fendant retained  the  stock,  and  dividends  were  made  upon  it. 
February,  1805,  S.  &  Co.  demanded  the  stock,  which  defend- 
ant declined  to  give  up.  Xo  request  was  made  to  sell 
the  same.  "When  the  demand  was  made  it  had  reached  a 
higher  point  than  it  had  touched  at  any  time  since  it  was 
placed  in  defendant's  hands. 

Upon  the  trial  it  was  adjudged  that  plaintiff  was  the  owner 
of  the  stock  and  entitled  to  a  transfer  thereof,  and  to  the  divi- 
dends received  and  interest  thereon.  But  the  judgment  in 
respect  to  the  dividends  was  modified,  and  it  was  held  that 
plaintiff  Avas  entitled  to  the  whole  of  the  stock.  On  appeal 
this  was  held,  error ;  that  as  no  request  was  made  to  sell,  and 
as  no  injury  had  accrued  to  plaintiff  by  the  delay,  and  as  there 
was  no  failure  on  the  part  of  defendant  to  fulfil  his  contract, 
he  should  receive  one  half  of  the  avails  of  the  stock  and  of 
the  dividends  actually  ])aid  to  him.' 

*  Wight  vs.  Wood,  12  .\.  Y.  Week.    Dig.  529,  s.  c.  85  N.  Y.  402. 


Joint  Adventures  in  Stocks.  319 

The  case  of  Eutler  vs.  Finck^  sbouUl  also  be  noticed  in 
this  connection,  as  bearing  upon  the  question  as  to  how  far 
a  joint  speculation  Avill  constitute  the  parties  engaged  there- 
in, partners,  so  as  to  render  one  of  them  liable  for  the  fraud 
of  his  co-operator.  There  the  defendant  entered  into  an 
agreement  with  his  brother-in-law,  B.,  to  the  effect  that  he 
should  conduct  certain  stock  speculations  for  B.'s  beneilt, 
collecting  information  of  such  a  character  as  to  justify  the 
purchase  of  stocks,  and  giving  his  time  and  attention  to  the 
purchase  and  sale  thereof;  for  these  services  he  was  to  re- 
ceive one  third  of  the  net  profits,  the  margin  to  carry  the  ac- 
count being  furnished  by  B.  The  defendant  knew  that  B. 
was  a  book-keeper  in  the  employment  of  the  plaintiff,  and 
had  no  means  outside  of  his  salary.  On  April  23,  1870,  the 
defendant,  claiming  that  his  share  of  the  profits  amounted 
to  $0818.48,  received  from  B.  an  order  upon  iiis  Brokei-  for 
that  sum,  which  was  paid  by  the  drawee.  Subsecpu.'ntly  B. 
absconded,  and  it  was  then  learned  that  he  had  stolen  bonds 
from  the  plaintiff,  and  pledged  them  to  secure  his  account 
with  the  Broker,  by  whom  some  had  been  s(tld  and  others 
pledged.  It  appeared  that  the  sum  received  by  the  defend- 
ant was,  in  fact,  one  third  of  the  ]irofits  actually  made  by 
him  while  conducting  the  account,  and  also  that  B.  had,  with- 
out his  knowledge,  speculated  on  his  own  account,  both  !)•'- 
fore  and  after  the  times  referred  to.  It  was  not  shown  that 
the  defendant  knew  that  H.  had  stolm  the  l>on<ls  until  after 

'  21    Hun   (N.   v.),  210.     It  wa.s  sioiis    imd    wius    (o    Ix-nr    li:ilf    tin- 

held  in  Sutton  vh.  Gray,  (1894)  1  Q.  losst-s,  was  not  a  partnorship  af;roo- 

H.  '2.S'>,  tliat  an  ajjreeinent  |jc;tween  niont,  and  di<l  not  come  within  the 

a  njc'inlior  of  the  Kxchant:»-  ami  a  Ith  soction  of  the  Statute  of  KraudM 

noij-in<nnl>«T,  Ijy  which  tin-  lattfr.  on  ho  m  to  n'tpiire  the  m^reeiuent  to  bo 

buiiiucKH  intro<lufe<l  by  him.  Wits  to  in  writiiif^. 
Titi-\\i-  Ijilf  till-  Broker's  cymmi»- 


320  Stoek-brokeis  and  Stock  Kxchanges, 

he  bad  absconded.  The  defendant  having  refused  to  account 
to  the  ])hiinti(r  for  the  amounts  received  by  him,  an  action 
was  brought  to  recover  damages  for  the  conversion  of  tlio 
bonds  ;  and,  u[)on  the  trial  thereof ,  the  court  directed  a  ver- 
dict for  the  plaintiff,  for  the  entire  amount  lost  by  the  ab- 
straction of  the  bonds,  on  the  theory  that  the  defendant  and 
B.  were  co-partners  in  the  transaction,  and  that  the  former 
was  therefore  liable  for  the  acts  of  the  latter.  It  was  held, 
that  this  was  error,  and  that  the  question  as  to  whether  or 
not  a  partnership  existed  between  B.  and  the  defendant 
should  have  been  submitted  to  the  jur^^  It  was  doubted 
whether  in  any  event  the  defendant  was  liable  for  the  amount 
actually  received  by  him  from  B.^ 

And  where  an  agreement  was  made  between  three  per- 
sons to  share  the  profits  and  losses  of  a  single  transaction, 
the  parties  do  not  become  partners  so  as  to  render  an  ac- 
counting necessary,  and  if  the  speculation  has  proved  a  loss, 
and  one  of  the  parties  has  paid  the  entire  loss,  he  may  re- 
cover one  third  of  the  loss  from  the  representative  of  one 
of  the  parties  who  had  died,  without  naming  the  other  as  a 
party  to  the  action.^ 

Where  A.,  in  pursuance  of  a  parol  authority  from  B,  pur- 
chases stock  in  his  own  name  on  the  joint  account  of  him- 
self and  B.,  the  latter  becomes  the  owner  of  one  half  the 

'  An    agreement    by    whicli   one  general     question    as    to    whether 

party  loans  money  to  another  to  be  joint    operators    are    partners,    see 

used  in  joint-stock  speculations,  the  Parsons  on  Partnership  ( tth  ed.),  50, 

profits  of  which  were  to  be  equally  51 ;  also  as  to  joint  adventures  in  a 

divided  and  the  money  loaned  re-  purchase  or  enterprise,  see  King  vs. 

turned,  nothing  being  said  as  to  the  Wise,  43  Cal.  62S;  Flagg  vs.  Mann,  2 

los.ses,   constitutes  the   parties   co-  Sumner,  486;  Reilly  vs.  Freeman,  1 

partners,   the   copartnership  being  App.  Div.  560. 
terminable  at  will.     Sims  vs.  Vyse,        ■  Burleigh  vs.    Bevan,    22   Misc. 

13  N.  Y.  St.  Rep.  355.     Upon  the  38. 


Joint  Adventures  in  Stocks. 


321 


stock,  and  liable  to  pay  A.  the  amount  advanced  therefor  ; 
and  no  ^vritten  assignment  of  the  stock  from  A.  to  B.  is  nec- 
essar}',  to  render  B  liable  for  his  proportionate  share  of  the 
purchase-money.' 


«  Stover  vs.  Flack,  41  Barb.  (N. 
Y.)  162,  aff'd  30  X.  Y.  64.  And  if  the 
stock  is  worthless  he  is  not  bound  to 
attempt  to  sell  it  in  the  market  be- 
fore commencing  his  action.  Ibid. 
Unless  otherwise  stipulated  parties 
to  a  joint  account  are  entitled  to 
share  in  the  profits  and  liable  to 
divide  the  loss  in  proportion  to  the 
amount  of  the  purchase  money  each 
has  advanced.  Boardman  vs.  Gail- 
lard,  60  N.  Y.  614.  See  generally 
on  subject  of  "joint  account"  and 
several  lial^ilit)'  in  stock  transac- 
tions, Quincey  vs.  AMiite,  63  X.  Y. 
370,  377,  378;  Kimball  vs.  Wil- 
liams, 65  X.  Y.  Supp.  69.  In  an 
action  to  recover  capital  contrib- 
uted for  the  purpose  of  engagins;  in 
joint  speculations,  a  recovery  can 
only  be  had  by  proof  that  there  had 
been  no  transaction  on  joint  ac- 
counts, and  where  there  have  been 
such  traasactions  resvilting  in  total 
loss  of  the  capital,  the  complaint 
must  be  dismis.sed.  Siuis  vs.  V'yse, 
13  X.  Y.  St.  Rep.  355.  Joint  ac- 
count may  be  proved  by  showing 
original  authority  to  buy  or  sell;  or 
if  there  be  no  such  authority  by  sub- 
BCfiuent  ratification.  Wheeler  vs. 
Sedgwick,  94  U.  S.  1.  The  sale  of 
stock  by  one  of  the  parlies  to  a  joint 
account  witliout  the  knowlwltre  or 
coascnt  of  the  others,  is  a  conver- 
sion, and  the  parlies  not  consulted 
are  not  liable  for  any  losn  occurring 
thereby,     Thompson  vn.  Brown,  2 

21 


J.  &  S.  1.  TMiere  bonds  were  pur- 
chased by  plaintiff,  there  being  an 
agreement  that  another  who  did  not 
become  part  owner  of  the  bonds 
should  share  in  the  profits  and  loss- 
es, but  the  plaintiff  advanced  all  the 
money  and  had  the  exclusive  right 
of  possession,  the  defendants,  Brok- 
ers, who  acted  in  the  purchase  could 
not,  when  sued  for  conversion,  set 
up  that  such  third  person  was  a 
necessary  party;  they  had  no  equity 
to  place  the  latter  in  any  other  rela- 
tion to  plaintiff  than  had  been  as- 
sumed by  the  parties  themselves 
under  the  agreement.  Wyckoff  vs. 
Anthony,  90  X.  Y.  442.  A  claim 
for  damages  growing  out  of  a  breach 
of  warranty  or  fraud  by  the  seller 
belongs  to  joint  buyers  jointly,  and 
cannot  therefore  be  set  up  in  a 
separate  counterclaim  of  any  of 
them.  Hopkins  vs.  Lane,  S7  X.  Y. 
501.  AMiere  in  an  action  for  an  ac- 
counting as  to  joint  transactions  in 
stocks  by  copartners,  the  plaintiff's 
right  to  an  account  is  cstabli.shed 
and  the  referee  states  snch  account, 
and  directed  further  that  certain 
bonds  and  stocks  be  delivered  by 
defendant  to  several  persons  not 
mentioncfl  in  the  complaint,  nor  par- 
ties to  the  suit,  held  tli:it  tlic  direc- 
tions of  the  judgment  witli  rcferenco 
to  these  persoas  not  |)arties  to  the 
suit  were  improjx'r;  that  the  referee 
should  havedirectc^l,  wlieti  he  found 
outside  parties  hud  claims  agiiinst 


322  Stock-brokers  and  Stock  Exchanges. 

But  where  two  parties  agree  to  operate  jointly  in  stocks, 
and  one  of  tlieni  accordingly  opens  an  account  in  his  own 
name  with  a  Stock-broker,  without  disclosing  the  name  or 
interest  of  the  other  party  in  the  transactions,  and  individ- 
ually manages  and  directs  the  operation,  and  the  Broker 
has  no  knowledge  of  the  other  person,  the  latter  cannot  re- 
cover his  interest  in  the  profits  of  specified  operations,  ignor- 
ing the  balance  of  the  account.  lie  cannot  isolate  certain 
items  from  the  account,  and  recover  them  simply  for  the 
reason  that  he  had  no  interest  in  the  other  transactions 
going  to  make  up  the  whole  account  from  which  losses  re- 
sulted. The  Brokers,  having  dealt  in  ignorance  of  the  rights 
of  the  other  owner,  may  insist  that  the  entire  dealings  shall 
be  closed,  as  if  the  person  operating  the  account  were  the 
only  one  interested.^  The  mere  fact  that  a  check,  paid  out 
by  a  member  of  the  firm,  is  in  the  name  of  the  firm,  is  not 
sufticient  notice  to  the  parties  receiving  it  that  it  is  partner- 
ship property,  nor  enough  to  put  them  on  inquiry  before 
crediting  the  amount  to  the  private  account  of  the  partner 
of  whom  they  receive  it.^ 

Although  a  Broker  may  make  a  hard  and  unconscionable 
bargain  in  a  joint  speculation  in  stocks  in  which  he  procures 
from  his  contractee  a  guarantee  against  all  losses  and  that 

the  firm  property,  the  appointment  posits  moneys  in  the  absence  of  the 

of  a  receiver,  who  should  a-scertain  other,  the  husband  is  presiuiied,  in 

the  valid  claims  and  distril)vite  the  the    absence   of    evidence,   to   own 

same,  etc.     Mifflin  vs.  Brooks,   18  half  at  least  of  the  sum  standing  to 

"S.Y.  Week.  Dig.  531.  their  credit.     Gelster  vs.  The  Syra- 

'  Read  vs.  Jaudon,  35  How.  Pr.  cuse  Savings  Bank,  17 'S .  Y .  Weekly 
(N.  Y.)  303.  See  also  Jaycox  vs.  Dig.  137.  As  to  effect  of  joint  de- 
Cameron,  49  X.  Y.  645.  posit  of  money  in  a  savings  bank, 

'  Sterling   vs.   Jaudon,    48   Barb,  see  Mulcahy  vs.    Emigrant    Indus- 

(N.  Y.)  459.     WTiere  husband  and  trial  Savings  Bank,  15  N.  Y.  Week. 

wife  have  a  bank  account  in  their  Dig.  27. 
two  names,  and  each  draws  and  de- 


''Short  Sales."  323 

his  (the  Broker's)  profits  on  the  transaction  should  in  any 
case  amount  to  a  certain  sum,  tlie  parties  advancing  the 
capital  in  about  equal  shares,  the  relationship  between  the 
parties  is  that  of  copartners,  and  not  that  of  borrower  and 
lender,  so  as  to  enable  the  contractee  to  interpose  the  de- 
fence of  usury." 

VII.  Sales  for  "Short  Account." 

(a.)   Nature  of  ''Short  Sale." 

A  "short  sale"  of  stocks  has  already  been  defined.  By 
such  a  sale  the  Client  expects  to  be  able  to  deliver  the  stock 
at  a  lower  price.  In  case  the  sale  of  the  stocks  is  made 
"  regular  *'  (that  is,  not  upon  time,  sellers  option),  the  party 
selling  is  bound  to  deliver  them  on  the  next  day  after  the 
sale  is  made,  in  Avhich  case,  not  having  the  stocks  which 
he  has  sold,  he  is  compelled  to  borrow  them,  and  to 
deliver  such  borrowed  stocks.  If,  however,  as  is  fre- 
quently the  case,  the  stocks  are  sold  deliverable  in  the 
future — that  is,  ''  seller's  option  "  or  "  buyer's  option  '' — 
then,  and  in  such  event,  it  is  not  necessary  for  the  vendor 
to  deliver  the  stocks  until  the  expiration  of  the  oi)tion, 
or  until  the  buyer  calls  for  them,  as  the  case  may  be.'' 
In  Knowlton  vs.  Fitch,^  Mr.  Justice  Rapallo defined  a"  short 

'  Orvifl  vs.  CurtLss,  1.57  N.  V.  0.57.  118  N.  V.  594;  Lazare  vs.  .\llen.  20 

See  further  a.s  to  joint  adventures  ill  App.  Div.  GIG;  Smith  vs.  Houvier, 

stocka,  and  as  to  opening?  an  account  70  Pa.  St.  325;  Maxton  vs.  (Iheon, 

Htated.     lierdell  vs.  Allen,  22  J.  &:  S.  75  id.  IGG. 

38;  aff'd  1 16  N.  Y.  6G1 .  '  52  N.  Y.  288.     As  to  dilTcrenct. 

'See,   for   cases   defMiiiiR   "short  between   ".short  sale"  and  one  at 

Hales,"  White  vs    Smith,  ."il  N.  Y.  seller's  option  where  t lie  seller  owns 

522;  Wicks  vs.   nat<h,  G2  id.  53.5;  the  sto<'k  c<jntracte<i  to  ho  sold,  siw) 

Knowlton  vs.  Iit<h.  .52  id.  '2SH.  rev'u  Sistare  vs,  Ik-st,  KS  X.  Y.  .5.H:V     Tho 

•JS  Harl)    193;  f  ■;iiiiphcl!  vs   Wright,  seller's  option  here  rcfcrnnl  to  is  of  a 


324  Stock-brokers  and  Stock  Exchaiif^cs. 

sale "  as  follows :  "  The  nature  of  these  sales  has,  in  the 
many  litigations  which  have  come  before  the  courts  concern- 
ing them,  been  f  i-ecjuently  })rove(.l,  and  is  again  explained  in 
the  testimou}'  in  this  case.  It  is  proven  to  be  a  sale  before 
purchase,  with  a  view  of  pnrchasing  at  a  future  time  at  a 
lower  price.  It  is  evident  that,  to  carry  out  such  a  specuhi- 
tion,  the  stock  sold  must  be  temporarily  procured  by  the 
seller  for  delivery  to  the  purchaser.  The  manner  in  which 
this  had  been  accomplished,  in  the  course  of  the  previous 
dealings  between  the  plaintiff  and  the  defendants,  is  ex- 
plained in  the  testimony.  The  plaintiff  did  not  fuiTiish  the 
stock  to  deliver,  but  only  margins.  The  defendants  fur- 
nished the  stock.  They  soUl  in  the  regular  way,  which  is 
deliverable  the  next  day,  and  theu  borrowed  the  stock  of 
other  parties  to  deliver.  The  profit  or  loss  depended  upon 
whether  the  stock  rose  or  fell.     The  plaintiff  had  the  right 

different  nature  from  that  referred  113.  A  contract  to  sell  stocks 
to  in  the  text,  where  the  seller  need  "short"  which  is  contrary  to  public 
not  possess  the  stocks  at  the  time  of  policy  cannot  be  enforced.  Veazy 
sale.  Requirements  of  complaint  vs.  .Vllen,  173  N.  Y.  359.  In  that 
against  Broker  for  nef2;lect  to  execute  case  the  Client's  claim  was  that  the 
"short  sale"  stated  in  Ryder  vs.  defendant  Brokers,  in  consideration 
Sistare,  15  Daly,  90.  \Vlien  the  of  liis  supplj'ing  them  with  informa- 
complaint  does  not  show  that  the  tiou  concerning  an  investigation  in- 
stocks  ordered  bought  ever  in-  to  the  affairs  of  two  corporations 
creased  in  value,  or  that  loss  was  popularly  known  as  the  "Whisky" 
caused  by  any  change  in  the  value  and  "Sugar"  Trasts,  which  he  was 
of  the  stocks  ordered  .sold,  the  plain-  to  procure  to  be  made  b}^  Congress, 
tiff  can  only  recover  nominal  dam-  w-ould  sell  the  stock  of  the  corpora- 
ages.  Id.  As  to  whether  a  custom  tions,  and  buj'  tliem  again  at  a 
of  Brokers  to  use  stocks  carried  for  lower  price,  the  decline  in  price  be- 
margin  buyers  in  effecting  sales  for  ing  caused  by  the  Congressional  in- 
other  "short  sale"  customers,  so  vestigation,  and  divide  with  him  the 
that  the  amount  of  certain  stocks  profits  so  made,  and  the  court  held 
carried  are  at  times  reduced  below  that  such  a  contract  was  clearly 
the  requirements  of  the  purchasing  against  public  policy,  and  unen- 
castomers,  is  reasonable,  quaere,  forceable.  Id. 
Skiff  vs.  Stoddard,  21  L.  R.  A.  102, 


'*  Short  Sales.'*  326 

to  direct  his  Brokers  at  any  time  to  buy  in  the  stock  and 
close  the  transaction.  Until  bought  in,  the  Brokers  re- 
mained bound  to  the  persons  from  whom  they  had  obtained 
the  stock,  to  return  to  tliem  an  equal  number  of  shares, 
■whatever  might  be  the  market  price  at  the  time  it  was 
demanded." ' 

A  ''short  sale"  was  also  defined,  and  the  duties  of  a 
Broker  considered,  in  the  case  of  White  vs.  Smith.'^  It  was 
there  laid  down  that  where  a  Stock-bi'oker  agreed  for  a 
commission  to  be  paid  to  him,  and  upon  a  deposit  with  him 
of  a  stipulated  margin,  to  make  a  short  sale  for  a  Client, 


'  A  " short  sale "  of  stocks  is  legal  and  the  Mechanism  of  Excliange, 
in  Pennsylvania  (Smith  vs.  Bouvier,  pp.  210,  211).  The  act  of  1867  has 
70  Pa.  St.  325;  Maxton  vs.  Gheen,  been,  however,  disregarded  on  the 
75  id.  166).  In  the  case  of  Apple-  English  Stock  E.xchanges,  and  it 
man  vs.  Fisher  (34  Md.  540),  a  con-  has,  to  a  large  extent,  failed  to  at- 
tract to  sell  gold  "short"  was  up-  tain  the  object  of  its  enactment,  as 
held  as  legal.  See  also  Chap.  V.  knowledge  by  tlie  Client  of  the  cus- 
" Stock-jobbing."  tom  to  disregard  it,  is  sufficient  to 

".\bout  ten  years  ago  it  became  exonerate  the  Broker.  See  Chapter 
the  practice  to  rig  the  market  as  re-  on"Usages";  Brodliurst's Stock  Ex- 
gards  the  .shares  of  particular  joint-  change  Law,  p.  197;  Chitt}''s  Stat- 
stock  banking  companies.  .\  party  utes,  vol.  1,  title  "Bank,"  p.  39.  It 
would  be  formed,  perhaps,  owning  was  held  in  Mitchell  vs.  City  of  Glas- 
none  of  the  shares  of  the  selected  gow  Bank,  4  -^^pp.  Cas.  024,  that 
company,  and  they  would  proceed  entries  in  tiie  books  of  the  respect- 
to  sell  considerable  quantities  of  the  ive  lirokers,  each  entry  specifying 
shares,  iioping  .so  to  damage  the  rep-  the  name  of  the  Broker  for  tlie  other 
utation  of  the  company  and  lower  party,  initialed  by  him,  coupled 
the  value  of  the  stock  as  to  be  able  with  the  mention  of  tlie  vendor's 
to  buy  up  enougli  before  delivery  name  after  the  sale,  was  not  a  corn- 
would  be  required.  This  noxious  plianc-e  with  the  act.  But  the  prao- 
kind  of  speculation  was  checked  by  tice  of  selling  stocks  and  securitiert 
an  .\ct  of  Parliament  (30  Vict,  c  29,  "short"  has  prevaile<l  for  a  very 
1867),  which  now  requires  the  seller  nnich  longer  time  in  this  country. 
of  bank  shares  to  specify  the  num-  .\s  to  legality  <if  "short  sales,"  see 
bars  or  the  registered  proprietors  of  title  "Stock-jobbing." 
the  share*  wliich  he  is  wiling  for  '51  N.  Y.  522. 
future    delivery"    (Jevon'tj    Money 


:{Jt)  Stock-brokers  ami  Stock  Exchanges. 

the  agreement  is  but  partially  performed  by  a  sale  ;  it  is 
part  of  the  bargain  that  the  Broker  shall  carry  the  stock 
for  a  reasonable  time,  as  otherwise  the  object  of  the  trans- 
action would  be  defeated.  The  Broker  can  close  the  trans- 
action at  any  time  if,  upon  demand  and  notice,  the  margin 
is  not  kept  good  ;  and  he  may  close  it  upon  notice  after  he 
has  carried  the  stock  for  a  reasonable  time.  He  has  not 
the  right,  unless  so  expressly  agreed,  to  buy  in  stock  to 
cover  the  sale  without  notice  to,  or  direction  from,  his 
Client,  and  by  so  doing  he  becomes  liable  for  any  loss  he 
thus  occasions. his  principal.  In  that  case  it  a})peared  that 
on  the  18th  of  October,  defendants  (Stock-brokers),  upon 
plaintiff's  order  and  on  his  account,  sold  300  shares  N,  Y.  C. 
"short"  at  186.  On  the  1st  of  Xovember,  without  plain- 
tiff's order  or  knowledge,  they  "bought  in"  stock  to  cover 
the  sale.  On  the  2d  of  November,  the  stock  having  de- 
clined to  ISO^,  plaintiff  ordered  defendants  to  cover  their 
sale,  to  which  no  attention  was  paid.  The  court  held  that 
the  plaintiff  Avas  entitled  to  i-ecover,  and  that  the  j)roper 
measure  of  damages  was  the  difference  between  the  price 
at  which  the  stock  was  sold  short,  and  the  market  price 
upon  the  day  when  the  order  was  received  to  purchase,  with 
interest,  deducting  commissions,  etc' 

'  See  also  to  same  effect,  Rogers  profits,  while  the  customer,  on  his 
vs.  Wilev,  131  N.  Y.  527.  The  same  part,  is  bound  to  keep  his  margin 
rule  was  declared  in  regard  to  a  good,  so  as  to  secure  the  Broker 
short  sale  of  wheat  in  Campbell  against  loss.  But  the  customer  is 
vs.  Wright,  118  N.  Y.  394.  The  entitled  to  notice  before  the  Broker 
Broker  and  the  customer  have  mu-  can  close  him  out  by  buying  in  the 
tual  and  correlative  rights  and  stock  on  his  account.  Hess  vs. 
duties.  The  former  undertakes  to  Rau,  95  N.  Y.  359,  362,  afT'g  17  J. 
carry  the  stock  a  reasonable  timej  &  S.  324;  Harris  vs.  Prj^or,  18  N.  Y. 
so  as  to  afford  the  customer  an  op-  Supp.  128.  But  if  a  Client  wishes 
portunity  to  realize  the  expected   to  "cover"  a  short  sale,  he  must 


Nature  of  Contracts — Borrowing  Stocks.        327 

{li.)   Dutij  of  Broker  to   SvU  at  Price   Onfcn'J. 

The  Broker's  duty,  upon  receiving  an  order  to  sell  stocks 
short,  is  analogous  to  that  which  he  owes  in  the  case  of  a 
})urchase.  Where  he  is  ordered  to  sell  at  a  tixed  price,  he 
must,  if  possible,  sell  at  such  price  ;  if  at  the  market  price, 
he  must,  as  we  have  seen,  sell  at  the  best  possible  market 
])rice,  being  responsible  to  his  Client  for  the  non-exercise  of 
ordinary  care  and  dihgence,^ 

(c.)   Nature  of  Contract  made    upon  ^'^  Borroirinff"    Stork,  arid 
from   whom  the  Stock  may  be  Borrowed. 

The  practice  or  usage  in  borrowing  stocks  is  this  :  A  Broker 
who  has  sold  stocks  "  short ''  borrows  the  number  of  shares  of 
stock  sold  from  a  fellow-Broker  who  has  the  stocks  to  loan, 
and  ])ays  him  the  market  price  for  them.  Although  in 
semljlance  a  sale,  the  full  market  price  being  paid  and  the 
stock  delivered,  it  is,  in  effect,  but  a  loan,  and  is  so  reg- 
istered on  the  books  of  the  respective  Brokers.  So,  if  the 
borrowed  stocks  fluctuate  widely,  either  Broker  can  call 
upon  the  other  to  j)ut  up  a  suilicient  margin  to  guard  against 
loss  until  the  stock  is  returned.^ 

prove  that  his  instructions  reached  Brokers  at  the  opening  of  tlie  niar- 

the    Broker    iu    suflicieut    time    to  ket  on  October  23.     Birnbauni  vs. 

make  the  purchase  at  the  time  re-  May,  58  App.  Div.  79.     If  a  "short 

quested.     His     evidence     that     he  sale"  is  repudiated  by  the  customer, 

mailed  a  letter  to  hLs   Broker  on  the   Broker  is  justified   in  closinp;, 

October  21,  22   or  2'^,  to   buy    10  and    the    Client    cannot    afterward 

shares  of  railroad  stock  at  the  mar-  enforce  it.     Id. 

ket  price  at  the  openin;;  of  the  mar-  '  See  ante,  §  IV.,  sub.  (a.),  p.  li-UU. 

ket  on  (JcUjber  2.'{,  is  not  Kufficicnt  See  also  Allen  vs.  McConihe,  ante, 

to  holi]  the   Brokers  liable  for  n(»t  p.  2()ti. 

filling  the  order,  unleas  it  is  shown  'See  .Vrts.  XXXI.  and  XX\11I. 

that  the  letter  was  maile<l  at  such  a  Connt.  New  York  Stock  E.xchaiiKe. 

time  that  it  would  liave  reached  the  But  tiie  nili;  to  reipiire  the  lender  to 


328  Stock-brokers  iind  Stock  Exchanges. 

For  instance,  a  stock  may  be  selling  for  $100  pLT  share 
■when  it  is  borrowed,  and  afterwards;  may  decline  to  S-^**  poi' 
share,  in  which  case  the  borrowing  Bi-oker  has  stock  which 
is  only  worth  one  half  the  amount  which  he  has  paid  to  the 
lender ;  in  such  a  case  the  borrower  has  the  light  to  call 
uiH)n  the  lender  to  make  up  the  difference  by  depositing  a 
suificient  mai'gin,  and  vice  versa.^  So,  it  seems,  that  a  Bro- 
ker who  is  "  short "  of  stock  for  a  Client  may  borrow  the 
stock  belonging  to  other  Clients ;  no  one  can  object  to  this 
arrangement  but  the  Clients  themselves  whose  stocks  are 
borrowed,  and  it  does  not  lie  in  the  mouth  of  the  person 
"short''  to  do  it.^ 

Rapallo,  J.,  upon  this  point,  said :  "  The  fact  that  the 
shares  thus  used  belonged  to  a  customer  of  the  defendants 
can  make  no  difference  to  the  plaintiff.  The  result  of  the 
transaction  was  to  leave  the  defendants  liable  to  their  cus- 
tomer as  before,  to  deliver  to  him  an  equal  number  of  shares 
when  demanded.  Whether  or  not  the  defendants  were 
authorized  thus  to  employ  the  stock  of  their  customer  de- 
pends upon  the  arrangements  between  them."  In  the  case 
of  Dykers  vs.  Allen  ^  Mr.  Chancellor  Walworth  held  that 
an  orilinarv  loan  of  a  given  number  of  shares  of  stock  of  a 
corporation  amounts  in  substance  to  a  sale,  to  be  paid  for 

put  up  margins,  or  a  usage  to  that  usage  of  the  Exchange,  to  that  ef- 

effect,  must  be  proved,  and  there-  feet.     Morris  vs.  Jaraieson,   68  N. 

fore,  if  a  Stock-broker,  at  his  Ghent's  E.  Rep.  742. 

request,  borrows  the  stocks  to  cover  '  As  to  the  measure  of  damages 
a  short  sale,  and  paj-s,  for  such  bor-  for  refusal  or  neglect  to  return  bor- 
rowed stock,  a  greater  sum  than  rowed  stock,  see  chapter  "Measure 
that  received  on  the  short  sale,  he  is  of  Damages." 

not  bound  to  require  the  lender  to  ^  Knowlton  vs.   Fitch,  52  N.  Y. 

put  up  margins  on  a  decline  of  the  288,  rev'g  48  Barb.  593. 

stock,  in  the  absence  of  a  special  ^  7  Hill,  497. 
agreement,  or  proof  of   a   rule   or 


Duty  of  Krokor  '*  Buying  in."  820 

in  kind  and  quality,  and  the  title  vests  in  the  borrower.'  11" 
a  bonus  be  declared  on  stock  loaned,  while  it  is  in  the  hands 
of  a  borrower,  the  lender  is  in  equity  entitled  to  the  bonus.' 
This  law  fully  accords  witii  the  practice  of  Brokers,  who 
hold  all  dividends,  interest,  or  other  accretions  to  the  stock 
for  the  account  of  the  lender. 


(d)   Duty  of  Brokers  to   Close  Short  Contract  hy  '''■Buying  in" 

Stock. 

As  we  have  seen,^  the  Broker  has  no  right  to  buy  in  the 
stocks  Avith  which  to  cover  or  conclude  a  "short''  sale, 
without  the  order  or  knowledge  of  the  Client,  unless,  after 
notice  and  demand  of  additional  niari;in,  the  latter  fails  to 
respond.  Upon  the  order  or  request  of  the  Client,  the 
Broker  must  proceed  to  buy  the  stocks,  and  return  them  to 
the  person  from  whom  they  were  originally  borrowed,  and 
this  closes  the  transaction.^     If  the  stocks  can  be  purchased  at 

'  See  also  Fosdick  vs.  Greene,  27  tract   until    the   appointment   of   a 

Ohio  St.  484;  Taylor  vs.  Ketchuni,  lej^al    representative.     Tlie    Broker 

35  How.  Pr.  (N.  Y.)  289.     The  bor-  has    bound  himself   to    return    the 

rower  is  not  bound  to  return  the  stock,   howe\'er,   for  delivery,   and 

identical  shares  borrowed.    Anycer-  has  an  interest  in  the  contract,  and 

tificate    for    the    name    number    of  so  the  ca.se  is  within  the  exception 

shares    will    suffice,    provided    the  to  the  rule  that  tlic  tleath  of  a  prin- 

shares    continue    to    represent    the  cipal  revokes  tlie  authority  of  the 

same  interest  in  the  corporate  capi-  a^ent.     He.ss    vs.    Kau,    '.).')    N.    Y. 

tal.     Harday  vs.  Culver,  :iO  Hun,  1.  :«5),  afT'f^  17  J.  &  S.  32  J.     The  court 

*  Vaughan  vs.  Wood,  1  .M.  it  K.  .said  (p.  .3(13):  ".\s  it  turned  out  it 
403.  would  have  been  to  the  advantaKo 

*  Wliite  vs.  Smith,  .54  N.  Y.  522;  of  the  estate  if  the  stocks  had  been 
Heas  vs.  Ilau,  95  N.  Y.  359;  Harris  bought  in  immediately  after  Rau's 
vs.  Pryor,  18  X.  Y.  Supp.  128.  (the  riicnt's)    dcatli.     H\it    if   this 

*  If  the  f'licnt  ha.s  rlied,  or  be-  course  had  been  taken  and  the  mar- 
comes  incrmipet  cut  to  transact  busi-  kct  had  none  the.  other  way,  the 
ncHs,  a  Hroker,  actintr  in  nood  faith;  Brokers  wmild  have  been  caijerl  upon 
mny  continue  a  "short  sale"  con-  to  ju.stify  the  transaction.    We  think 


S30  Stock-brokers  and  Stock  Kxcliauges. 

a  lower  figure  than  that  tor  which  they  were  originally  sold, 
the  Client  has  made  a  profit;  if  otherwise,  a  loss.  In  the 
case  of  White  vs.  Smith  '  the  defendants,  Stock- brokers, 
bought  in  stocks  to  complete  a  short  sale  without  the 
authority  of  the  plaintiflf ;  and,  subsequently,  the  latter  di- 
rected them  to  make  the  purchase,  which  the  defeiuUints 
refused  to  do.  The  defendants  contended  that  they  were 
not  under  an  obligation  to  act  for  the  jjlaintiff,  eitlier  for 
any  fixed  period  or  to  any  definite  amount.  I>ut  the  coui-t 
held  the  rule  of  law  otherwise,  and  decided  tliat,  by  the 
agreement  by  which  the  agency  was  created,  no  period  was 
fixed  for  its  continuance,  and  the  only  limit  as  to  amount 
"was  fixed  by  margin  or  deposit ;  and  that  it  could  not  be  re- 
voked by  the  defendants  without  notice;  and  a  renunciation 
without  such  notice  subjected  the  defendants  to  a  liability 
for  any  damages  the  })laintiff  might  sustain  thereby.^ 

The  notice  to  furnish  more  margin  must  be  a  reasonable 
notice.    As  to  what  is  a  reasonable  notice  to  justify  a  Broker 

the  plaintiffs  were  not  bound  to  awaitine;  the  appointment  of  a  rep- 
place  themselves  in  this  dilemma,  resentative;  but  however  this  may 
but  were  authorized,  acting  in  good  be,  we  think  it  plain  that  no  exi- 
faith,  to  maintain  the  existing  situa-  gency  existed  in  the  case  now  under 
tion  until  a  representative  of  the  es-  consideration  which  imposed  any 
tate  should  be  appointed.  .  .  .  such  duty  upon  the  plaintiffs." 

"The  act  of  buying  in  the  stocks  If  the  promisor  in  a  stock  option 
on  account  of  the  estate,  which  the  contract  dies  while  the  contract  is 
executor  insists  should  have  been  executory,  a  demand  for  the  stock 
done,  would  have  been  a  more  de-  under  the  contract  must  be  made 
cisive  act  of  agency  than  to  borrow  upon  the  personal  representatives 
stocks  to  replace  others  previouslj'  of  the  deceased  promisor  and  not 
borrowed,  in  order  to  discharge  upon  the  bank  where  the  contract 
their  own  obligation.  We  do  not  is  made  payable.  Prince  vs.  Robin- 
say  that  circumstances  might  not  son,  14  Fed.  Rep.  631. 
exist  which  would  justify  a  Broker  '  6  Lans.  (X.  Y.)  5. 
in  closing  a  .stock  transaction  after  '  This  ca.se  was  affirmed  on  ap- 
the  death  of  the  principal,  without  peal,  54  N.  Y.  522. 


Duty  of  Broker  "  Buyiug  iu."  331 

to  cover  a  transaction  and  close  the  deal,  depends  upon  circum- 
stances/ It  was  held  in  Lazare  vs.  Allen,-  that  a  notice 
given  at  between  10  and  10 :  30  a.  m.  lo  furnish  more  mar- 
gin, the  stock  having  been  purchased  by  the  Brokers  about 
noon  of  the  same  day,  was,  standing  alone,  unreasonable  in 
point  of  time,  but  in  that  case  the  Brokers  had  testified  that 
on  the  fourth,  third  and  second  days  before  the  sale  they  had 
requested  more  margins  from  their  Client,  the  stock  having 
gone  up,  and  if  the  case  had  gone  to  the  jury  they  might 
from  the  evidence  have  declined  to  find  that  the  Client 
(who  had  been  forty  years  engaged  in  stock  transactions, 
and  who  lived  only  a  block  away  from  the  Broker's  office) 
had  the  necessary  margins  ready  for  use  on  the  day  of  sale. 
If  the  purchase  had  been  made  four  days'  subsequently,  the 
customer  would,  owing  to  the  fall  in  price  of  the  stock,  have 
made  a  profit  of  $925.  After  the  transaction  was  closed 
the  Brokers  had  to  his  credit  $01.35,  for  which  sum  the 
jury  found  for  theplaintitf  under  the  direction  of  the  court, 
and  tlic  judgment  on  such  verdict  was  aflirmed  by  the 
Ajjpellate  Division. 

In  Knowlton  vs.  Fitch'  the  plaintiff  employed  defend- 
ants, who  were  Stock-brokers,  to  operate  for  him  in  stocks. 
He  was  to  furnish  a  margin,  and  keej)  it  good  without  no- 
tice; defendants  to  care  for  themselves,  if  he  did  not.  All 
the  transactions  were  "  short  sales,''  dofeiulants  selling,  de- 
livenible  the  next  day,  and  i)orrowing  the  stock  to  deliver 
until  plaintiir  directed  a  jmrchnso  to  replace  the  stock  bor- 
rowed. At  the  close  of  a  transaction  thus  condut^ted,  de- 
fendants li;id  to  the  order  of  |)l;iintiir  slii  |',t.  p.t.     The  latter 

•  Seep.  .340,  iirxJciLscs.itcdiioU;  I.        '52   N.   Y.    28S,  rcv'g    IS    Uurl). 
»20    App.    l)iv.    010.      Sec    uls.)    S'J.'i. 
Karuuly  vb.  Hurk,  IS  Midi.  278. 


332  Stock- brokers  and  Stock  Kvchaiij^cs. 

then  directed  tlie  sale  of  1<>0  slmres  of  Michigan  Southern. 
Defemlants  sold  as  ordered  on  account  of  phiintilf,  borrow- 
ing the  stock  to  deliver,  and  placing  proceeds  to  plaintiffs 
credit.  The  stock  rising  in  the  market  so  as  to  exhaust 
the  margin,  defendants  notified  plaintiff  to  furnish  more, 
and,  upon  his  failure  to  conipl}',  bought  in,  to  i-eplace  the 
stock  borrowed.  In  an  action  brought  to  recover  the 
$1249.19,  held,  that  the  defendants  were  authorized  under 
})l;untiirs  order  to  sell  and  to  borrow  the  stock  for  deliv- 
ery;  and,  upon  failure  of  plainLilf  to  furnish  the  necessary 
margin,  they  had  the  right  to  buy  on  his  account ;  that  the 
purchase  was  so  made,  and  that  therefore  a  finding  that 
such  purchase  was  not  made  for  or  on  account  of  plaintilf 
was  error.  In  the  case  of  Staples  vs.  Gould  '  the  court 
held  that  where  a  Broker  is  employed  to  sell  "  short"  cer- 
tain stock,  deliverable  at  any  time  Avithin  30  days,  at  the 
option  of  the  principal,  and  the  Broker  sells  the  stock  as 
ordered,  although  the  stock  advances  beyond  the  extent 
of  the  margin  deposited  with  the  Broker,  the  latter  can- 
not buy  in  the  stock,  without  the  authorization  of  the  prin- 
cipal, at  any  time  befoi-e  the  30  days  have  ex[)ired,  the 
time  for  delivery  limited  by  the  contract.  In  that  case 
the  plaintiff,  on  the  15th  of  January,  1851,  erapWed  the 
defendant,  a  Broker,  to  sell  for  him  200  shares  of  Canton 
Company  stock  at  $66  per  share,  deliverable  at  the  phiin- 
tiff's  option,  at  any  time  within  30  days  from  date.  At 
the  same  time,  he  deposited  with  the  defendant  the  sum 
of  $750  "  for  the  purpose  of  protecting  the  defendant 
against  loss  or  damage  in  the  business  of  such  agency." 
In  pursuance  of   his  employment,   the  defendant    on    the 

>  9  N.  Y.  520. 


Duty  of  Broker  "  Buyiui?  iu."  333 

same  day  made  contracts  for  the  sale  to  two  firms  speci- 
fied in  the  agreement  with  defendant.  The  phiintiff  did 
not  at  the  time  own  any  stock  of  the  Canton  Company. 
On  tlie  20th  of  January,  1851,  the  defendant  delivered  to 
each  of  the  purchasei-s  the  100  shares  of  stock  contracted 
to  be  sold  by  him,  without  the  knowledge  or  consent  of 
plaintiff,  the  stock  on  that  day  selling  at  $80  and  $85  per 
share.  At  the  expiration  of  the  30  days  the  stock  was  be- 
low S«JG  per  share.  The  plaintiff  brought  an  action  to  re- 
cover back  the  money  deposited  with  the  defendant,  and 
the  court  held  that  the  plaintiff  had  a  cause  of  action,  but 
there  could  be  no  recovery  under  the  Stock-jobbing  Act. 

The  usage  of  "Wall  Street  is,  that  where  stock  is  sold  de- 
liverable at  a  future  time,  the  parties  to  the  contract  can 
call  upon  each  other  for  a  deposit  to  meet  fluctuations  com- 
mensurate with  the  present  market  price  of  the  stock.  This 
can  be  repeated  any  number  of  times,  so  that  each  party 
will  remain  intact.'  But  it  may  be  contended  that  the 
legitimate  etfect  of  the  case  just  cited  would  be  to  put  the 
whole  burden  of  the  fluctuations  u[)()n  the  Broker,  and  to 
leave  the  Client  entirely  unburdened  in  a  transaction  con- 
summated for  his  sole  benefit,  after  his  margin  has  been 
entirely  e.xhausted  by  the  rise  in  the  price  of  the  stocks. 
This  does  not  seem  to  be  reasonable,  l)ut  the  only  relief 
against  the  decision  would  seem  to  be  by  })roviding  in  the 
beginning  of  the  transaction,  either  by  a  deposit  or  special 
agreement,  for  the  fluctuations  of  the  market.  The  full 
force  and  influence  of  this  view  of  the  decision  in  Staples 
V!5.  Gould  will  be  seen  ]>y  th«^  following  illustration  :  A 
Client  orders  his  llrokcr  to  sell  joii  shares  of  stock  "short," 

'  ArtH.  X.XXI  and  X.WIII.  Const.  .\.  V.  Stock  KxrhaiiKO. 


334  Stock-brokers  aud  Stock  Exchanges. 

seller  60,  at  $100  per  share.  The  Broker  executes  the  or- 
der upon  receiving  a  10  per  cent  margin,  or  $1000.  Ten 
days  after  this  sale  the  price  of  tlie  stock  is  $120,  and  fifty 
days  after  the  sale  it  has  risen  to  $150.  Yet  it  seems  that 
the  Broker  cannot  call  upon  his  Client  for  further  margin, 
nor  buy  in  the  stock  without  his  consent.  This  is  certainly 
contrary  to  the  usage  of  Wall  Street ;  and  if  the  question 
were  to  clearly  arise  again,  the  courts  would  have  good  rea- 
son to  reject  the  decision  upon  the  ground  that  the  case  of 
Staples  vs.  Gould  was  really  decided  upon  another  point, 
and  that  it  contradicts  the  law  that  the  Client  is  impliedly 
bound  to  furnish  margins  to  meet  the  fluctuations  of  the 
market.^  Or,  although  no  reference  is  made  to  this  point 
in  the  opinion,  the  decision  may  be  supported  upon  the 
ground  that  the  plaintiff  had  the  right  to  recover  back 
his  margins  because  the  stock  was  bought  in  by  the  Broker, 
and  the  transaction  closed,  without  any  notice  to  him. 
TThile  the  theory  of  the  law  in  this  respect,  when  applied 
to  general  commercial  subjects,  is  correct,  that  where  goods 
are  sold,  deliverable  within  sixty  days,  at  the  option  of  the 
buyer,  there  is  no  liability  on  the  part  of  the  latter  until  the 
sixty  days  have  accrued,^  yet  when  applied  to  a  AYaU  Street 
transaction,  where  the  business  is  conducted  from  day  to  day 
upon  present  values,  it  works  manifest  hardship  and  injustice. 

Till.  Ciiinpulsory  Sale  by  Broker. 

(«.)  For  Failure  to  Put  iqy  Margins  to  Meet  the  Fluctuations  of 

tJie  Market. 

It  the  absence  of  an  express  contract  providing  other 

wise,  the  law  will  not  throw  the  burden  or  risk  of  loss  from 

'  See,  upon  this  point,  next  sub.        '  Oelricks  vs.  Ford,  23  How.  (U. 
(VIII.),  p.  335.  S.)  49. 


For  Failiiie  to  Put  up  Margins.  335 

the  fluctuations  of  the  market  upon  the  Broker,  but 
will  compel  the  Client,  upon  a  proper  demand  by  the 
former,  to  furnish  margin  sufficient  to  make  the  latter 
safe.' 

In  a  stock  transaction  such  as  we  are  treating  of,  it  is  ex- 
pressly or  impliedly  agreeel  that  the  margin  shall  be  re- 
plenished, if  the  stock  appreciates  or  depreciates,  as  the 
case  may  be;  and,  upon  failure  of  the  Client  to  do  so, 
the  stock  may  be  sold  upon  reasonable  and  customary 
notice.^ 

The  relation  which  exists  between  a  Broker  and  his  Client 
in  the  purchase  of  stocks  has  already  been  considered,'^  and 
it  follows,  from  the  establishment  of  the  relation,  that  the 
Broker  cannot  summarily,  without  any  previous  demand  of 
margin,  dispose  of  his  Client's  stocks.     He  is  bound  to  give 

'  The    fact    that  in  dealings  be-  bought  upon  margin  on  the  Board 

tween    members    of    the    Chicago  of  Trade  of  Chicago,  Corbett   vs. 

Board  of  Trade,  one  mem})er  might  Underwood,  83  111.  321;  Moeller  vs. 

be  able  to  defeat  a  call  for  margins  McLagan,  60  id.    317.     As  to  the 

under  §  7  of  rule  20  of  the  rules,  did  difference  between  an  unauthorized 

not  deprive  him  of  the  right,  when  purchase  by  a  Broker   to    cover  a 

the  title  to  the  margins  wa.s  put  in  "short"  sale,  and  of  a  purcha.se  on 

issue,   to   prove,    that   the   niarket  a  margin,  see  Campbell  vs.  Wright, 

value   of   the   article   .sold    wa.s   no  US  \.  Y.  594.     See  also  Perin  vs. 

higher  on  the  day  of  delivery  than  Parker,    12(5    111.    201.     As   to   the 

when     it     wius     sold.     Ryan     vs.  legality  of  a  usage  on  the  Exchange 

Cudahy,  1.57  111.  lOS,  121.  to  sell  without  demand  for  margin, 

'Grumaii  vs.  Smith,  SI  X.  Y.  25;  see  post,  p.  418  et  seq.  .\nd  upon 
10  N.  Y.  Weekly  Dig.  03,  rev'g  12  J.  the  .New  Orleans  Cotton  Exchange 
&  S.  (N.  Y.)  389;  Knowlton  vs.  when,  under  its  rules,  contracts  are 
Fitch,  52  X.  Y.  288;  Stenton  vs.  "closwl  out"  at  stated  "times  by  the 
Jerome,  .54  id.  480;  Gillett  vs.  Whit-  payment  of  differences,  and  a  con- 
ing, 120  X.  Y.  402  (in  which  case  it  tract  is  "closed  out"  by  a  cotton 
wa-s  also  lield  that  as  there  wa.s  a  factor  although  llie  opposite  party 
breach  of  contract  bv  the  Brokers  does  not  demand  more  margins. 
they  were  not  entitle*]  to  any  dam-  Lehman  vs.  Feld,  37  Fed.  Hep.  S52. 
acce),  and  ciiMM  cited  at  j)  3-12.  Sec,  '.Supra,  p.  179  et  seq.,  and  cusca 
ri"    '"    -irnilar    nil'-    wIkt'-    "run    j.^  ilnti-  <iii-i|. 


336  Stock-brokers  and  Stock  Excliauges. 

the  latter  notice  that  his  margin  is  diminished,  and  that 
further  margin  is  required.* 

An  injunction,  however,  will  not  be  granted  to  restrain  a 
Stock-ljroker  from  selling  stocks  deposited  with  him  as  a 
margin  in  a  speculative  transaction,  upon  a  mere  general 
averment  of  irreparable  injury,  without  showing  in  what 
respect  this  injury  will  be  entailed.  "Where  there  is  no 
averment  or  proof  of  the  Stock-broker's  insolvency,  the  fact 
of  a  "low  "  market  is  not  enough  to  justify  the  issuing  of 
an  injunction.  The  plaintiff  in  such  a  case  has  a  perfect 
remedy  at  law  in  damages  for  the  conversion  of  his  stocks, 
if  they  are  improperly  sold.'  Nor  can  a  pledgor  resist  the 
sale  of  the  stock  on  the  ground  that  it  can  only  be  made 
at  a  great  sacrifice.^ 

So  where  there  is  a  written  contract  for  the  delivery  of 
certain  merchandise  at  a  given  price,  to  be  delivered  within 
a  named  time  at  the  option  of  the  seller,  evidence  offered  by 
the  purchaser  of  a  usage  existing,  by  which  a  "  reasonable  " 
margin  should  be  put  up  to  meet  the  fluctuations  of  the 
market,  is  rightfully  excluded,  because  it  is  too  indefinite 
and  uncertain  to  establish  a  usage.  Moreover,  where  there 
is  no  doubt  or  ambiguity  on  the  face  of  the  contract,  evi- 
dence of  the  usage  is  inadmissible.^ 

(b.)  Form  of  Notice ;   Ujjon  whom  Served;   Reasonable  Time. 

There  is  no  set  form  which  the  Broker  is  obliged  to  use 
in  making  this  demand  for  more  margin.     Any  language 

'  Baker  vs.  Drake,  66  X.  Y.  518;  =  Park  vs.  Musgrave,  2  T.  &  C. 

Gruman  vs.  Smith,  Si  id.  25;  Ritter  (X.  Y.)  571. 

vs.  Cushman,  35  How.  Pr.  (N.  Y.)  *  Rasch  vs.  His  Creditors,  1  La. 

284;  s.  c.  7  Robt.  294;  Hanks  vs.  Ann.  31. 

Drake,  49  Barb.  186;  Stenton  vs.  ••  Oelricks  vs.  Ford,  23  How.  (U. 

Jerome,  54  X.  Y.  480.            .  S.)  49. 


Form  of  Notice.  337 

is  sufficient  which  brings  clearly  home  to  the  Client  a  notice 
that  additional  margin  is  required.^ 

In  one  case^  the  demand  for  more  margins  was  made 
orally,  and  this,  no  doubt,  is  equally  as  effective  as  a  writ- 
ten demand,  if  it  can  be  clearly  proved. 

But  it  seems  that  a  demand  for  margins  should  specify  the 
sum  required  ;  yet  the  Client  may  use  such  language  as  "  I 
have  no  money,"  which  will  obviate  the  necessity  of  the  sura 
being  mentioned.^  A  notice  without  date  or  signature,  left 
in  the  pledgor's  office,  stating  that  if  a  specified  amount  of 
the  loan  was  not  paid  the  stock  would  be  "  used,"  does  not 
constitute  a  demand  sufficient  to  authorize  a  sale.* 

Respecting  the  person  upon  whom  the  demand  should  be 
made,  the  general  rule  is  that  it  should  be  served  upon 
or  made  to  the  Client  in  person,  although  there  are  cir- 


'  Milliken  vs.   Dehon,   27   N.  Y.  The  Client  is  precluded  from  ob- 

364;  Cameron  vs.  Durkheim,  55  id.  jectin.ir  that  the  demand  for  margin 

425;  Corbett  v.s.  Underwood,  S3  111.  was  excessive  if  at  the  time  of  the 

324;   Moeller   vs.   McLagan,   60   id.  demand,  he  did  not  make  this  ob- 

317.     An  examination  of  a  Client  jection,  but  refused  to  pay  on  an- 

before  trial  as  to  his  receipt  of  no-  other   ground.     Perin   vs.    Parker, 

tices    for    margin    was    allowed    in  126  111.  201. 
Hardy  vs.  Peters,  30  Hun,  79.  -A.  verbal  notice  personally  given 

'Cameron  vs.   Durkheim,  55  N.  by    the    Broker    to    the    customer 

Y.  425.  thus:  "Let  me  close  you  out;  let  ua 

'Cameron  vs.   Durkheim,  supra;  buy   that   boat   load,   and   we   will 

Stenton  vs.  Jerome,  54  N.  Y.  4H0,  at  take   what   ready   money   you   can 

486.     See  also  liurkett  vs.  Taylor,  give  us,  and  your  note  for  the  bal- 

N.  Y.  Ct.  of  .\ppeul8,  86  N.  Y.  618;  ance,"   which   proposition  the  cus- 

suh   nom.,    Hur-kitt    vs.    Taj'lor,    13  tomer  declined,  is  not,  lus  matter  of 

Weekly  Dig.  75;    Covell  vs.  Loud,  law,  sufficient  to  enable  the  Hroker 

135  .Ma.s8.  41.  to  do.se  the  customer  out,  without 

*  Genet   vs.    Howland,    15    H.irl)  further     direction.     McCinnis     vs. 

fjiVi.     \  notice  by  a  pledgee  that  he  Siiiythe.  IS  .].  Si  S.  103;  alTM  23  W. 

will  Ht;l\  unless  an  excessive  sum  is  I).  203;  101  N.  Y.  6-16;  more  fOlly  1 

paid,     renders     the     sale     invalid.  Sii.  23. 
Pigot  VH  Ciiblcv.  15  C.  IJ.  N.  S.  701. 


388  Stock-brokers  and  Stock  Exchanges. 

cumstances  which  would  justify  the  service  of  the  same 
upon  an  agent  or  representative  of  the  latter.* 

It  may  be  made  upon  the  clerk  of  the  Client  employed  by 
him  in  that  particular  transaction,  or  upon  a  confidential 
clerk  of  the  Client,  where  the  latter  is  absent  from  the 
city.^ 

So  a  notice  left  at  the  dwelling  or  place  of  business  of 
the  Client  would  seem  to  be  sufficient.  Shaw,  Ch.  J.,  lays 
down  the  rule  ^  that  "  all  notices  at  one's  domicile,  and  all 
notices  respecting  transactions  of  a  commercial  nature  at 
one's  known  place  of  business,  are  deemed  in  law^  to  be 
good  constructive  notice,  and  to  have  the  legal  effect  of 
actual  notice."* 

In  Burkett  vs.  Taylor'  the  Court  of  Appeals  of  the 
State  of  New  York  intimated  that  where  a  Client  had 
given  a  place  to  the  Brokers  where  all  notices  should  be 
delivered,  a  notice  sent  to  a  different  address  would  not 
be  sufficient. 

In  the  case  of  Milliken  vs.  Dehon  ®  the  facts  showed 
that  the  transaction  had  been  negotiated  through  one  D., 
a  clerk  of  the  plaintiff,  who  sometimes  did  outdoor  busi- 
ness for  him,  and  that  he  acted  as  plaintiff's  agent  in  the 

'Cameron    vs.    Durkheim,    and  vs.  Taylor,  13  W.  D.  75.      "WTiere  it 

cases  supra.  is  agreed  that  if  more  margin  is  re- 

'  Milliken  vs.   Dehon,   27  N.  Y.  quired  no  sale  will  be  made,  but  the 

364;  Cameron  vs.  Durkheim,  supra,  Broker  will  draw  on  the  Client  for 

and  cases  heretofore  cited.  the  amount  needed,  the  Broker  has 

'  Granite    Bank    vs.    Ayers,    33  no  right  to  sell  without  so  drawing, 

Mass.  392.  even  if  the  Client  is  without  the  State 

*  See  also,  to  same  effect,  Bryan  and  to  the  Broker's  knowledge  has 

vs.  Baldwin,  7  Lans.  (N.  Y.)  174;  made  no  provision  for  the  payment 

and    cases    cited    under   sub.    (c),  of  the  draft.     Foote  vs.  Smith,  136 

post,  p.  347;  Burkett  or  Burkitt  vs.  Mass.  92. 
Taylor,  supra.  «  27  N.  Y.  364. 

'  86  N.  Y.  618;  sub  nom.,  Burkitt 


Form  of  Notice.  339 

transaction  in  question.  On  this  evidence  the  question 
was  left  to  the  jury,  whether  D.  was  authorized  by  the 
plaintiff  to  receive  the  notice,  and  that  this  would  depend 
upon  whether  D.  acted  as  plaintiff's  agent  or  not.  The  jury 
having  found  that  he  did  act  as  agent,  the  instruction 
was  upheld  by  the  appellate  court.  In  delivering  the 
opinion,  Marvin,  J.,  said  :  "  It  is  also  insisted  that  the 
defendant  was  bound  to  make  a  demand  of  payment  of 
the  margin  personally  of  the  pledgor,  and  that  notice  to 
redeem  should  have  been  given  personally,  and  so  as  to 
the  time  and  place  of  sale.  ...  It  seems  to  me  that  a 
demand  upon  an  authorized  agent,  or  notice  given  to 
him,  is,  in  law,  equivalent  to  a  notice  to  the  princi- 
pal, and  no  reasons  occur  to  me  why  such  demand 
or  notice  should  not  bind  the  principal.  It  is  not  a 
proceeding  by  which  a  personal  judgment  is  to  be  re- 
covered. A  different  rule  would  often  be  very  incon- 
venient." ^ 


•  To  same  effect,  Bank  of  U.  S.  vs.  Rau,    95    N.    Y.    359.     And    after 

DavLs,  2  Hill  (N.  Y.),  451;  Wade  on  executors  have  qualified,  they,  un- 

Law  of  Notice  (2d  ed.),   §  672  et  der  a  direction  in  the  will  to  convert 

seq.,    and    cases   cited;    Potter   vs.  stock  into  money,  without  limit  as 

Thompson,  10  R.  I.  1.     The  agency  to  time,  liuve  a  tliscretion  to  wait  a 

of  a  Stock-hroker  on  margin  trans-  reii.sonal)le  time  for  tlie  performance 

actions  bcinn  one  coupled  with  an  of  the  duty  and  (hero  is  no  rii^id  and 

interest,    his    authority    to    act    as  arbitrary    standaril    by    wliich    to 

agent  is  not  revoked  by  the  death  measure  such  time.     The  statutory 

of  his  customer,  and  he  may,  acting  period   allowe<l   to   close  an   estate 

in  good  faith,  maintain  the  exi.stinp  may  sometimes  mark  the  limit  of 

deals,  until  a  representative  of  the  discretion;  whih;  always  a  circum- 

cstate  shidl  be  appointed.     Hut  a.s  stance  to  be  considered,  it  is  not  nec- 

U)  whether  circum.stances  mi^ht  not  cssarily  conchjsive.     In  re  Weston, 

exist  which  would  justify  the  Hro-  91  .N.  Y.  502. 

ker  in  flosinu  the  transactions  with-  .\s  to  custom  in  England  to  close 

out  aw.'iitint;  the  rjuahfu'ation  of  the  transactions  of  deceased  customer, 

representative,    rjuare.     Hess      vh.  see  cu«es  cited,  po.st,  p.  1001. 


340  Stock-brokers  and  Stock  Exchanges. 

And  where  several  arc  jointly  bound  to  do  an  act  upon 
notice  to  them,  notice  to  one  is  suflRcient.' 

Another  very  important  inquiry  is  as  to  the  length  of 
time  which  the  Broker  should  give  the  Client  to  respond; 
this  cannot  be  definitely  stated,  but  the  Client  should  be 
allowed  a  reasonable  time^  within  which  to  comply  with  the 
demand  ;  and  what  constitutes  a  reasonable  time  depends 
upon  the  peculiar,  circumstances  of  each  case.  It  may  be 
an  hour,  a  day,  or  a  week,  depending  in  each  case  upon  the 
situation  of  the  parties,  the  character  of  the  market,  or  the 
nature  of  the  stock.^ 

In  Burkett  vs.  Taylor  *  the  court  intimated  that  a  notice  to 
a  Client  demanding  additional  margins  before  twelve  o'clock 
of  the  day  on  which  it  is  dated  would  not  be  a  sufficient 
notice  in  point  of  time  ;  also  that  a  notice  such  as  above 
should  specify  the  time  and  place  of  sale  in  case  of  default 
to  supply  additional  margins. 

So  where  the  Broker  and  his  Client  lived  in  the  same  city, 


'  Mandeville  vs.  Reed,  13  Ab.  Pr.  Lane,  and  the  decision  of  the  court 

(N.  Y.)  173.  was  doubtless  based  upon  the  im- 

'  Markham  vs.  .laudon,  41  X.  Y.  probability  of  the  notice  reaching 

235,  at  p.  243.  the  Client  in  sufficient  time,  if  his 

^  Cameron  vs.  Durkheim,  .55  X.  friend  were  oblijxed,  in  the  Client's 

Y.  425;  Milliken  as.  Dehon,  27  id.  absence,  to  forward  the  notice  to 

364;  Stewart  vs.  Drake,  46  id.  449;  another   address.     See   also   Genet 

Maryland  Fire  Ins.  Co.  vs.  Dalrym-  vs.  Rowland,  45  Barb.  560. 

pie,   25  Md.   242;  Willoughby  vs.  A  letter,  by  the  Broker,  written 

Comstock,    3    Hill    (X.    Y.),    389;  on  the  18th  of  the  month,  enclosing 

Br^-an  vs.  Baldwin,  7  Lans.  (X.  Y.)  an     account     showing     differences 

174;  Burkett  or  Burkitt  vs.  Taylor,  against  the  Client,  and   requesting 

supra;  Perin  vs.  Parker,  126111.201;  instructions   as   to   closing  the  ac- 

17  Bradw.  169.  count  by  11  o'clock  of  the  next  day, 

*  Supra.     In  the  case  cited  in  the  was   held   to   be   an   unreasonably 

text  the  Client  had  requested  the  short  notice.     Ellis  vs.  Pond,  L.  R. 

Broker  to  send  him  notice  to  the  1  Q.  B.  (1898)  428,  445. 
office  of  S.    a  friend,  at  99  Maiden 


Form  of  Notice.  341 

a  Dotice  for  margins,  or  in  default  thereof  that  the  stock 
would  be  sold  in  two  days  from  the  date  of  the  demand,  was 
held  timely  and  reasonable.'  In  that  case  defendants.  Stock- 
brokers in  the  city  of  New  York,  purchased  for  plaintiff 
certain  stocks  under  an  agreement  that  they  were  to  ad- 
vance the  money  for  the  })urchases,  and  he  was  to  keep  with 
them  a  satisfactory  margin  or  security.  A  portion  of  the 
stock  Avas  sold  by  defendants  without  ginng  plaintiff  notice 
of  the  time  and  place  of  sale.  Plaintitf  repudiated  and 
disavowed  the  sale.  Defendants  acceded  to  such  disavowal, 
and  notified  plaintiff  they  would  not  consider  the  sale  as 
made  on  his  account,  but  on  their  own ;  and  by  both  parties 
it  was  subsequently  treated  as  a  nullity  as  between  them. 
After  that  defendants  notified  plaintiff  to  furnish  additional 
margin,  and  upon  his  failure  so  to  do,  in  the  afternoon  of 
the  28th  of  April,  served  upon  him  personally  a  notice  that 
unless  a  satisfactory  margin  was  fui'nished,  or  the  balance 
of  his  account  paid,  his  stocks  would  be  sold  at  public  auc- 
tion upon  the  30th  of  April,  at  12:30  p.m.,  at  a  place  des- 
ignated ;  and  the  stocks  were  soKI  in  accoixlance  with  the 
notice.  Tlie  })laintiff  was  held  to  have  waived  his  right  to 
recover  as  for  a  c<jnversion  of  tiie  stocks  sold  at  the  first  sale. 
His  default  in  furnishing  a  satisfactory  mai-gin,  or  paying 
the  balance  of  the  account,  entitled  the  defendants  to  enforce 
their  lien  by  the  salV*  of  the  stock  ;  jind,  the  parties  living  in 
the  same  city,  the  notice  of  the  sale  was  a  timely  and  reason- 
able one,  and  the  siile  legal.  It  was  held,  further,  that  in  an 
action  brought  to  recover  damages  for  the  alleged  un- 
autiiorized  sale  of  tlie  stock,  the  answer  setting  up  a  counter- 
claim, it  was  proper  for  the   referee   to  state  an  account 

'  Stewart  V-    Dr.ik.'.  11.  V    V    JKl. 


342  Stock-brokers  and  Stock  Excliaiis^es. 

between  the  purtios,  and  to  yivc  judgment  in  favor  of  de- 
fendants for  any  balance  found  due  them. 

In  the  case  of  Gruman  vs.  Smith  '  the  court  said  :  "  Upon 
failure  to  do  so  (furnish  margins),  the  stock  may  be  sold 
upon  reasonable  and  cvdoinary  notice," 

It  thus  seems  that,  in  respect  to  the  time  given  by  the 
notice  to  comply  with  the  demand,  the  usages  of  Brokers 
may  be  well  introduced  to  establish  a  limit,  as  this  is  one  of 
the  elements  which  may  be  assumed  as  understood  in  the 
inception  of  the  relation  of  Broker  and  Client.^ 

In  Milliken  vs.  Dehon,^  which  arose  out  of  a  transaction 
in  cotton,  similar  in  substance  to  a  stock  speculation,  the 
pledgee,  as  he  may  be  termed,  gave  the  pledgor  notice  that, 
if  the  latter  did  not  make  his  margins  good  the  next  day, 
he    would   sell    the   cotton,    which    was   done,   and    there 

'81  N.  Y.  25.  for  notice  from  them,  ;uk1  furtlier 
'See  chapter  on  "Usages."  If  tliat  if  one  per  cent  margin  were  not 
the  usage  of  the  Exchange  justifies  sent  in  by  next  morning's  mail,  stop 
it,  there  may  be  a  sale  for  failure  to  orders  to  the  best  of  their  ability 
put  up  margins  without  any  notice,  would  be  entered,  it  was  held  that 
Van  Horn  vs.  Gilbough,  21  Am.  the  jury  was  warranted  in  finding 
Law  Reg.  (n.  s.)  171.  If  the  parties  that  this  notice  of  one  day  was  rea- 
make  no  agreement  as  to  notice,  the  sonable,  and  that  it  had  not  been 
Board  of  Trade  rules  apply.  If  the  waived  by  the  Brokers,  on  receipt 
latter  require  notice,  such  must  be  next  morning,  of  a  letter  from  the 
given.  If  there  is  neither  agree-  Client  directing  stop  orders  at  one 
ment,  nor  nile,  then  the  common  point  from  the  market,  haA'ing  tele- 
law  requires  reasonable  notice,  graphed  that»they  had  entered  stop 
Denton  vs.  Jackson,  15  Chic.  Leg.  orders  at  one  half  point.  This 
News,  309.  showed  that  the  Brokers  had  not 
'27  N.  Y.  361.  And  in  another  accepted  their  customer's  proposi 
case,  it  appearing  that  Brokers  in  tion,  but  acting  in  compliance  with 
Philadelphia  had  notified  their  their  notice  had  entered  .stop  orders 
Client  in  New  York  that  as  they  had  to  the  best  of  their  ability.  Harris 
made  an  exception  in  his  case  to  vs.  Pryor,  18  X.  Y.  Supp.  128.  See 
their  usual  requirement  of  five  per  also  Johnston  vs.  Miller,  53  S.  W. 
cent  margin,  he  should  himself  Rep.  (Ark.)  1052. 
watch  his  account  without  waiting 


Form  of  Notice.  343 

was  no  point  raised  in  the  case  that  the  notice  was  too 
short. 

But  a  case^  Avhich  arose  out  of  a  specuktion  in  gold  most 
strongl}'-  illustrates  the  question  of  what  is  a  reasonable 
time  in  this  respect.  There  the  Brokers  had  made  oral  de- 
mands for  more  margins,  to  which  the  Ghent  stated,  in  ef- 
fect, that  he  had  no  money  and  was  ruined,  and  that  the 
Bi"okers  must  take  care  of  themselves,  whereupon  the  latter 
closed  the  account  i)y  a  settlement.  This  the  Court  of  Ap- 
peals held  not  only  to  be  a  waiver  on  the  part  of  the  Client 
of  any  more  formal  demantl,  but  that  it  also  authorized  the 
Brokers  to  close  the  account  in  the  manner  in  which  they 
did.  Church,  Ch.  J.,  in  delivering  the  opinion  of  the  court, 
said  :  "  The  defendants  had  sold  $404,000  of  gold  short  for 
the  plaintiff,  and,  according  to  the  usual  custom  in  transact- 
ing that  business,  had  borrowed  the  gold  to  deliver.  The}'' 
had  received  from  the  avails  of  the  gold  sold,  and  from  the 
plaintiff,  payment  for  the  gold  at  140.  On  the  morning  of 
the  23d  gold  was  Cjuoted  at  14(i^,  and  at  night  it  reached 
143.  On  that  day  the  defendants  called  upon  the  phuntiff 
for  an  additional  margin  of  $7481.05,  which  would  secure 
the  gold  at  14  1^.  The  })laintiff  was  absent  from  the  city  on 
that  day,  and  his  clerk  delivered  some  collaterals  to  the  de- 
fendants, accompanied   by  a  promise  to  give  a  check  the 

'Cameron  vs.   Durkheini,  .W  id.  that    evpii  if  tlie  latter  relation  cx- 

42.5      In  .Ma.s.sachusetts  it  Wius  held  i.sted,  the  Client,  by  tellin;^  the  Hro- 

that  a.s  the  relation  of  Hroker,  carry-  kers  he  conld  pay  no  more,  and  re- 

ing  stocks  on  a  inar^^in,  to  a  Client,  questin;^  them  to  do  the  host  they 

was  a  contractual  one,  and  not  that  could   for  him,   authorized   a  sale, 

of  ple^Jgor  and  pledgee,  the  Broker  withotit    notice,    if    made    in    pood 

miyht  sell  without  notice,  when  the  faith.     The  question  of  a  u»iv.ie  of 

Client  faile<l  to  perform  his  part  of  the    Boston    Stock-brokers   to   sell 

the  contract  bv  m.ikin'.;  the  necra-  without  notice  wa.s  not  considered. 

Bary  advances  upon  denuind,  and  Coveil  vs.  Loud,  135  Mu.ss.  11. 


344  Stock-brokers  and  Stock  Exchanges. 

next  morning,  which  was  not  done.  On  the  morning  of 
the  24th,  at  ten  o'clock,  gold  opened  at  150,  and  rose  rapidh' 
until,  at  about  half-past  eleven  o'clock,  it  reached  102^,  and 
at  a  quarter-past  twelve  the  market  broke  and  went  as  low 
as  136,  and  soon  after  dropped  to  133,  The  effect  of  the 
sudden  and  unprecedented  rise  in  gold,  as  the  evidence 
shows,  was  to  produce  the  most  intense  excitement  and  con- 
sternation among  those  concerned  in  such  transactions.  At 
onetime  the  plaintiff  was  deficient  in  margin  more  than 
$80,000,  while  within  an  hour  afterwards  he  might  have 
closed  the  transaction  with  a  balance  in  his  favor  of  some- 
thing over  $25,000.  The  interviews  between  the  parties 
took  place  during  the  height  of  the  excitement,  when  every- 
thing was  uncertain. .  Whether  gold  would  depreciate  or  go 
to  a  much  hiiiher  fi<2-ure,  whether  the  rise  would  continue 
during  the  day  or  for  several  days,  and  whether  it  would  re- 
main permanent  or  not,  were  questions  of  doubt  and  appre- 
hension. When  the  defendants  called  for  additional  mar- 
gins, as  they  had  a  right  to,  if  the  plaintiff  did  say  to  them 
in  earnest  and  seriously,  as  claimed,  '  I  have  no  money  ;  I 
cannot  put  up  any  more  margin.  This  ruins  me  ;  I  hope  it 
won't  ruin  you  ;  you  must  take  care  of  yourselves,' — it  was 
pregnant  with  authority  and  consent  that  the  defendants 
might  take  any  course  to  save  themselves  from  loss  which 
would  be  deemed  prudent  and  judicious  under  the  circum- 
stances in  which  they  were  placed.  It  could  scarcely  have 
been  more  significant  if  the  language  had  been, '  The  sudden 
rise  in  gold  ruins  me,  and  I  now  authorize  you  to  adopt  any 
course  which  will  be  most  likely  to  save  yourselves  from  loss 
on  my  account.'    Thisis  the  natural  import  of  the  language."  ^ 

*  But  compare  Burkett  vs.  Tay-   45  Barb.  .560.     Where  the  Client's 
lor,  supra,  and  Genet  vs.  Howland,    agent,   when  the  Broker  took  his 


Form  of  Notice.  345 

In  another  case  ^  the  phiintiff  em[)h)yed  the  defendants, 
Stock-brokers,  to  buy  certain  stocks  on  time,  making  and 
agreeing  to  keep  good,  in  the  defendants'  hands,  a  deposit, 
to  indemnify  them  against  depreciation  in  the  market  value. 
The  stocks  having  fallen  after  their  })ui'eliase,  the  defend- 
ants called  on  the  i)laintiff  for  a  further  deposit,  and  he 
rephed  that  it  was  not  convenient  that  day,  but  that  he 
would  make  it  the  next  day.  At  the  same  interview  he 
gave  them  written  authority  to  sell  in  these  terms  :  "  Please 
sell  for  my  account  200  111.  Central  Jl.  E.  at  ."il."  After 
receiving  this  written  authority,  the  defendants  sold  the 
stocks  the  same  day  at  52.  In  an  action  against  the  defend- 
ants for  making  the  sale,  evidence  was  adjudged  competent, 
on  the  part  of  tlie  plaintiff,  that  it  was  agreed  at  the  same 
interview,  and  before  giving  the  authority  to  sell,  that  the 
defendants  should  wait  until  the  next  day  fvv  a  further 
deposit,  and  that  if  the  stock  went  down  to  51  meanwhile 
(at  which  point  the  existing  deposit  would  be  exhausted), 
the  defendants  might  sell  the  stock.  This  evidence  does 
not  contradict  the  written  power.  Aiul  such  an  agreement 
to  delay  is  not  void  as  being  without  consideration. 

order  for  a  "  short "  sale,  had  agreed  quishment  of  a  known  riRht;  and 

to  stay  in  the  oliice  and  watcli  the  there  mast  be  botli  knowledge  of  the 

market,  and  in  ra.se  it  went  af:ainst  rehnquishniont  of  the  rij.';lit  uiul  an 

his  principal,  would  direct  the  liro-  intention  to  relinquish  it.     A  suh- 

ker  at  once  to  cover  it,  and  it  ap-  secjuent  demand  \<*  not  necessarily 

peared  that  two  ilcniands  for  mar-  a   waiver  of   a  prior  one,  even   if, 

pins  were  made  on  tlie  day  of  closing,  heca^ise  of  ciianties  in.tlic  market, 

the  liroker  w.'w  justified  in  ciosinfj  the  amount  demanded  in  tlic  suhse- 

without  further  notice.     Ware  vs.  (juent    notice    sliouM    l)e    dilTerent 

Raven,  6  X.  Y.  St.   Rep.  2.'>9.     It  from  that  demande<l  in  the  former. 

ha«  been  made  a  question  hf)W  far  Porin  vs.  Parker,  120  111.  201. 

rcpcate<i  demands  for  mar^'in  o|)rr-  'Clarke  vs.  Meigs,  10  Hosw.  (N*. 

atcd  as  a  waiver  of  former  rlcni.iiids.  Y.)  .'{;{7,  '.V.VS.     Where  after  margin 

A   waiver  la  the   intentional   reliii-  has  been  demandetl,  the  C'!i(>nt  givoH 


346  Stock-brokers  ami  Stock  Excluinj^es. 

The  reasonabloiiess  of  tlie  notice  may  also  depend  upon 
previous  dealings  between  the  parties.' 

So  where  the  question  was  whether  reasonable  notice  to 
make  a  deposit  had  been  given  by  Brokers  to  their  princi- 
pal, and  all  the  evidence  on  the  subject  was  that  Turnished 
by  a  former  transaction  between  the  same  parties,  in  which 
the  same  notice  was  given — the  Brokers  waited  until  the 
next  morning,  when  the  deposit  was  made  and  it  was  sat- 
isfactory— the  court  held  that  the  principal  had  a  right  to 
suppose  that  the  same  course  of  dealing  which  had  oc- 
curred in  the  former  transaction,  and  was  satisfactory  to  the 
Brokers,  was  expected  in  the  present  case  ;  and  that  if  the 
Brokers  required  compliance  in  any  shorter  time,  they 
should  have  given  notice  accordingly .^ 

his  time  note,  but  it  is  not  received  '  A  Broker  may  close  out  without 
by  the  Broker  under  any  agreement  notice  when  memorandums  sent 
that  such  shall  be  its  effect,  it  does  their  client  in  prior  transactions  so 
not  operate  as  a  deposit  of  margins  stipulated,  and  there  were  many 
nor  does  it  extend  the  time  for  such  previous  •  transactions  in  running 
deposit  until  the  maturity  of  the  account.  Robinson  vs.  Crawford, 
note.  Gould  vs.  Tra.sk,  10  N.  Y.  .52  N.  Y.  Supp.  .500. 
Supp.619.  And  it  was  also  held  that  'Hanks  vs.  Drake,  49  Barb.  (N. 
as  the  Client's  action  was  for  conver-  Y.)  186.  As  to  whether  this  case  is 
sion,  and  not  for  a  balance  due  on  an  overruled  on  this  point,  see  Mark- 
account,  he  could  not  place  in  issue  ham  vs.  Jaudon,  41  N.  Y.  243,  per 
the  question  of  excessive  interest  Hunt,  Ch.  J.  See  also  cases  cited 
charged  by  the  Broker,  when  the  under  succeeding  paragraph.  So  a 
interest  would  not  equal  the  defi-  pledgee  cannot  sell  or  dispose  of 
ciency  in  margins.  Id.  But  if  the  the  securities  until  payment  of  the 
note  is  accepted  as  cash,  the  ac-  note  is  demanded  and  refused 
count  cannot  be  closed  before  its  (Lewis  vs.  Varnum,  12  Ab.  [N.  Y.] 
maturity.  Donald  vs.  Gardner,  44  Pr.  305). 
App.  Div.  235. 


Notice  of  Sale.  347 

(f.)   Notice  of  Sale  for  Failun'  to   Coyyiph/  icith  Demand  for 

Margins. 

But  the  mere  failure  of  the  Client  to  furnish  margins, 
after  notice  of  decline  or  advance  in  the  market,  as  the  case 
ma}'  be,  and  a  demand  for  margins,  is  not  sufficient  to  au- 
thorize a  Broker  to  sell  the  stock  or  close  the  transaction. 
He  must  also  give  notice  of  the  time  and  place  of  sale  to 
the  Client.* 

In  respect  to  the  form  or  contents  of  the  notice  to  the 
Client,  no  uniform  rule  can  be  laid  down.  No  peculiar 
terms  or  words  need  be  used.  It  may  be  oral  or  in  writ- 
ing ;  and  it  will  be  sufficient,  if  it  conveys,  by  plain  and 

•  Cases  cited  under  preceding  sub-  ing  without  notice,  see  Corbett  vs. 
divisions,  Gruman  vs.  Smith,  81  N.  Underwood,  83  111.  324.  In  this 
Y.  25;  Stewart  vs.  Drake,  46  id.  449,  case  it  was  held  that  where  a  com- 
450  and  453;  Wheeler  vs.  Xewbould,  mission  merchant  contracts  for  the 
16  id.  392;  Read  vs.  Lambert,  10  purcha.se  of  grain  for  another,  to  be 
.\b.  (X.  Y.)  Pr.  n.  s.  42S;  McGinnis  delivered  at  a  future  time,  the  prin- 
vs.  Smythe,  1  Sil.  23;  23  W.  D.  203;  cipal  making  an  advance  on  the 
and  see,  generallj'^,  Cortelyou  vs.  purchase,  which  is  in  the  merchant's 
Lansing,  2  Caines  (N.  Y.)  Cas.  200;  name,  and  agrees  to  keep  the  mar- 
Fletcher  vs.  Dickinson,  89  Mass.  23;  gin  good  up  to  the  time  of  delivery, 
Morris  Canal  and  Hanking  Co.  vs.  the  relation  of  pledgor  and  pledgee 
Lewi.s,  12  .\.  J.  Eq.  323;  Eldridge  will  not  be  created,  .so  as  to  require 
vs.  Metrop.  Bk.  X.  Y.  Daily  Rig.  a  notice  of  the  time  and  place  of  ii 
Jan.  31,  1887.  .\s  to  when  the  sale  on  failure  to  keep  up  tiic  mar- 
Hroker  is  not  liable  in  damages  al-  gins. 

though  the  notice  may  have  been  So,    in    England,    Stock-brokers 

iiLSufficient,   see   Quinlan    vs.    Ray-  whohave  with  their  own  money  pur- 

mond,   X.   Y.   Daily  Reg.  July  29,  chased  stock  for  a  principal  are  nu- 

1880;  afT'd  on  other  ground.s,  3  St.  thorized  to  close  a  transaction  with- 

Rep.  573.     The  question  of  want  of  out  notice  when  it  isiipparont  that 

notice  of  the  time  and  place  of  sale  their  Client   will   be  imable  to   re- 

caimot  be  raised  for  the  first  time  on  .spond   to   any   lo.ss,    by    roa.son    of 

apjMial.      Knickerl>ocker  vs.  Could,  bankniptcy,    death,    or    insolvoncy 

1 15  X.  Y.  533.      See  also  citses  cifcd  f»f  the  latter  fLacey  vs.  Ilill  (Scrim- 

under  succee<ling  parajrrapli.      .\Un  geo\ir's  Claim],    L.    R.   K  Ch.    .Al)|). 

Srhouler  on  Railm.    ^2(1  e<l.)  5  229.  921;  see  also  Colket   vs.    EHih,    10 

When  tisage  jastifie**  Hroker  in  sell-  I'liila.  375;  s.  c.  32  Leg.  Int.  82). 


348  Stock-brokers  and  Stock   Exchauges. 

simple  language,  the  nature  of  tlie  proj)erty  to  be  sold,  and 
the  time  and  place  of  such  sale.  The  notice  should  state 
the  time  and  2>face  of  sale.'  In  respect  to  the  iin)e  of  sale, 
the  general  principle  is  that  it  should  be  reasondble.  What 
constitutes  a  reasonable  time  depends  upon  the  peculiar  cir- 
cumstances of  each  case,  and  no  uniform  rule  can  be  laid 
down.  The  nature  of  the  stock,  the  residence  of  the  par- 
ties, and  all  the  other  elements  and  characteristics  of  the 
particular  transaction  control  the  question.'-  It  is  not  nec- 
essary that  this  notice  of  sale  should  be  made  separately 
from,  or  subsequently  to,  the  demand  for  more  margins. 
They  may  both  be  embraced  in  one  notice.^ 

In  respect  to  the  person  upon  whom  this  notice  should  be 
served,  it  has  been  decided  several  times  that,  in  case  of  a 

'Burkett  vs.   Taylor,   86  X.   Y.        ^  Stewart  vs.  Drake,  46  X.  Y.  449; 

618,  sub  nom.  Burkitt  vs.  Taylor,  13  Gruman  vs.  Smith,  81  id.  25;  Came- 

W.  D.  75;  Lewis  vs.  Graham,  4  Ab.  ron  vs.  Durkheun,  55  id.  425;  Sten- 

(X.  Y.)  Pr.  106;  Castello  vs.  City  ton  vs.  Jerome,  54  id.  480,  at  486. 

Bank,  1  X'.  Y.  Leg.  Obs.  25;  Mark-  It  was  intimated  in  a  recent  case 

ham  vs.  Jaudon,  41  X'.  Y.  235,  at  that  a  notice  sent  by  special  mes- 

243;  Edwards  on  Bailm.   (3d  ed.)  senger  on  the  evening  of  the  day 

§  286  and  notes  3,  4  and  5;  Diiler  vs.  pre\ious  to  the  sale,  and  after  tl^e 

Brubaker,  52  Pa.  St.  498;  Conyng-  closing  of  the  Exchange,  from  the 

ham'sApp.,57id.474;Gay  vs.  Moss,  Broker's  office  at  44  Broadway  to 

34  Cal.  125;  Robinson  vs.  Hurley,  the  Reform  Club  (the  address  given 

11  Iowa,  410.  by   the   Client)    would   have   been 

'  See  this  cjuestion  considered  in  sufficient  as  a   notification  to  the 

the  preceding  subdivision  (6.).    Mor-  Client   that   his    margins   were   ex- 

ris  Canal  Co.  vs.  Lewis,   12  X.  J.  hausted,   and   hLs   stock   would  be 

Eq.  323;  Diiler  vs.  Brubaker,  supra;  sold  unless  margin  was  kept  up,  if 

Conyngham's  App.,  supra;  Gay  vs.  the  inference  coidd  fairly  be  drawn 

Moss,    supra;    Little    vs.    Barker,  that  the  Client  actually  received  the 

Hoffm.  Ch.  487;  Genet  vs.   How-  notice,  the  latter  having  sworn  that 

land,  45  Barb.  (X.  Y.)  .560;  s.  c.  30  he  did   not  receive   it.     WolfT  vs. 

How.  Pr.  360;  Lewis  vs.  Graham,  4  Lockwood,    75   X'.   Y.    Supp.    605, 

Ab.    (X.  Y.)    Pr.   106;    Ogden  vs.  608. 
Lathrop,  3  J.  &  S.  (X.  Y.)  73;  rev'd 
65  X.  Y.  158. 


Notice  of  Sale.  349 

pledge,  there  must  be  persotial  notice  of  the  sale  to  the 
pledgor,  or  a  notice  left  at  his  residence  ;  and  that  if  the 
pledgor  cannot  be  found,  so  as  to  be  served  in  this  manner, 
resort  must  be  had  to  judicial  proceedings  to  foreclose  the 
rights  of  the  latter.*  But  notice  to  an  authorized  agent  is 
sufficient.^  And  where  it  is  impossible  to  give  notice  by 
reason  of  the  acts  of  the  pledgor,  a  sale  may  be  made  with- 
out notice.^  And  in  some  instances  a  sale  may  be  made 
after  publication  of  notice  thereof  in  a  newspaper.'' 

The  case  of  "Wiieeler  vs.  Newbould/  although  not  one 
arising  out  of  any  stock  transaction,  is  frequently  met  with 
in  stock  cases  up«m  the  question  of  the  manner  in  which  the 
pledgee  should  proceed  to  sell  the  pledge. 

The  defendant,  in  that  case,  purposely  withheld  from  the 
plaintiff  all  knowledge"of  the  time,  the  place,  and  manner 
of  sale,  and  the  sale,  when  effected,  was  made  privately  for 
about  three  fourths  of  the  actual  and  nominal  value  of  the 
securities.     The  court  lield  that  this  was  illegal. 

It  was  said  by  Brown,  J.,  that,  "  if  we  assume  that  the 
defendant  had  authority  to  sell  the  subject  of  the  pledge  in 
satisfaction  of  his  debt,  it  was  nevertiieless  his  duty  to  give 
to  the  plaintiff  personal  notice  of  the  time  and  place  of  the 
sale.  .  .  .  '  And  ])ersonal  notice  to  the  pledgor  to  redeem  and 
of  the  intended  sale  must  be  given  as  well  in  the  one  case 

'  Steams  vs.  Marsh,  4  Dcuio,  227;  '  Potter  vs.  Thompson,  10  R.  I.  1. 
Garlick  v.s.  James,  12  Johns.  110;  'City  IJank  of  Racine  vs.  Bab- 
Story's  Eq.  Jur.  (13th  ed.)  §  1(K)S;  cook,   supra. 

StronR  vs.  Nat'l  Bank'g  Ass'n,  45  ♦Stokeu  vs.  Frazier,  72  111.  428. 

N.  Y.  718;  Bryan  vs.   Baldwin,  7  See  also  cases  cited  under  preceding 

\j&x\s.    (N.    Y.)    171;    Donohoe    vs.  stjhchvision  (/;.).     As  tf)  how  far  tliis 

Gamble,  38  Cal.  340;  Pii:f»t  vs.  (Nil)-  rule  m;ty  l»e  affected  l»y  waiver,  see 

ley,  15  C.  B.  (n.  s.)  7f»l ;  City  Bank  post,  pp.  3r>3-G. 

of   Racine  vs.    Babco<-k,    1    Holmes  '  H»  .N    V.  ;W2. 
(C.C.  U.S.),  180. 


360  Stock-brokers  jiiid  Stock  Kxclianges. 

as  ill  the  other  (whether  the  debt  be  payable  presently  or 
on  time),  in  order  to  authorize  a  sale  by  the  act  of  the  party  ; ' 
and  if  the  pledgor  cannot  be  found,  and  notice  cannot  be 
given  him,  judicial  proceedings  to  authorize  the  sale  must 
be  resorted  to.  Before  giving  notice,  the  pledgee  has  no 
right  to  sell  the  pledge  ;  and  if  he  do,  the  pledgor  may  re- 
cover the  value  of  it  from  liiiu  without  tendering  the  debt.'  " 
After  a  pledgee,  however,  has  called  upon  the  pledgor  to 
pay  the  debt,  and  has  given  legal  notice  of  sale,  he  is  not 
bound  to  proceed  and  sell  the  same. 

And  this  doctrine  has  been  directly  applied  to  the  case 
of  a  transaction  between  a  Stock-broker  and  his  Client  by 
the  Supreme  Court  of  Pennsylvania,'^  where  it  was  decided 
that,  upon  the  failure  of  the  Client  to  respond  to  a  proper 
demand,  a  Broker  who  is  carrying  stock  for  him,  and  \vho 
notifies  the  latter  by  letter  to  increase  his  margin  or  take  up 
the  stock,  is  not  bound  to  sell  in  default  of  receiving  an 
answer. 

The  rule  is,  that  a  pledgee  of  stocks  or  securities  is  under 
no  obligation  to  sell  the  security  after  default  in  payment 
of  the  debt.^  In  the  Granite  Bank  vs.  Richardson,*  a  cred- 
itor holding  as  collateral  security  certain  bank  shares 
requested  the  debtor  to  pay  the  debt,  and  notified  him  that 

'  Sterns  vs.  Marsh,  4  Denio  (X.  customer.     Perin    vs.    Parker,    25 

Y.),  227.  111.  App.  465;  a£f'd  126  111.  201. 

'  Esser  vs.  Linderman,  71  Pa.  St.  '  O'Neill  vs.  WTaigham,  87  Pa.  St. 

76.     It  was  intimated  in  the  case  of  394;  s.  c.  7  Reporter,  245;  Robinson 

a  sale   upon   margin   of  grain  for  vs.  Hurley,  11  Iowa,  410;  Granite 

future   deliver>-   that    where   addi-  Bank  vs.  Richardson,  47  Mass.  407; 

tional   margin   is   peremptorily   re-  Howard   vs.   Brigham,   98   id.    133; 

fused,  it  is  the  duty  of  the  Broker  Williamson  vs.  McClure,  37  Pa.  St. 

upon  settled  principles  of  law  to  buy  402;  Schouler  on  Bailm.  §§  244,  245. 

in  the  grain  with  due  diligence  so  as  *  Supra, 
to  limit  the  loss  to  himself  and  his 


Notice  of  Sale.  351 

if  the  request  were  not  complied  with  immediately  the 
shares  would  be  sold.  The  debt  was  not  paid,  and  the 
pledgee  did  not  sell.  The  bank  subsequently  failed,  and  the 
shares  became  worthless.  The  creditor  then  began  an  ac- 
tion to  recover  the  money  due  him,  and  it  was  held  that  his 
failure  to  sell  the  shares  constituted  no  defence.  Thei'c 
was  no  duty  on  the  part  of  the  pledgee  to  sell  the  shares; 
he  simply  held  them  as  security,  with  perhaps  the  power 
to  sell  attached.  The  debtor's  remedy  was  to  pay  the  debt 
and  redeem  the  shares.  But  where  the  pledgee  or  Broker 
neglects  to  sell  after  request  or  demand  so  to  do  from  his 
pledgor  or  Client,  it  may  be  that  the  former  would  be  liable 
for  any  loss  which  might  occur  in  consequence  of  his  omis- 
sion to  sell.*  "Where  a  pledgee,  however,  has  acquired  the 
right  to  sell  for  his  own  protection,  either  by  a  demand  or 
notice,  or  by  waiver  of  such  demand  and  notice,  "all  he 
need  do  is  to  act  in  good  faith." '~ 

But  in  a  grain  transaction,  where  the  seller,  before  the 
time  expires  for  the  delivery  of  grain  sold,  notifies  the  pur- 
chaser that  unless  he  places  in  his  hands  a  deposit  to  cover 
a  decline  in  the  price  of  the  grain  he  will  sell  it,  and  after- 
wards does  sell  it,  and  notili<*s  tlie  buyer  of  the  fact,  he  there- 
by rescinds  the  contract,  and  cannot  subsequently  renew  it 
without  the  concurrence  of  the  purchaser.' 

Where  a  pledgor  of  securities  l^ecomes  a  bankrupt  after 
a  pledge  and  before  the  redemption  th<M*eof,  it  has  been  held 
that  such  fact  does  not  in  anywise  alfcct  the  rights  of  the 
pledgee  to  sell  and  transfer  tiie  scciirilics  upon  the  bank- 
rupt's default.     The  Bankrupt  .\ct-  docs  m<.l  take  away  any 

'  Howard  vs.  Brinliaiii,  supra;  '  MarCicltl  vh.  (loodliuc,  '.\  Com- 
«J'.\cill  V8.  WhiKliuiii,  s\i|ira  Htock  (N.  V.),  (i'J  7.1 

'  LiuHS«Mi  VH.  .Mitchell,    II    111     lUI. 


352  Stock-brokers  and  Slock  Kxcliaiiges. 

right  secured  to  tlie  pledgee  by  his  contract,'  nor  is  leave  of 
the  banki'uptcy  court  necessaiy  to  sell  tlie  stock  pleilged.'^ 
But  tlie  mere  fact  that  the  Broker  sells,  without  due  notice 
to  the  Client  of  the  time  and  place  of  sale,  and  by  such  act 
commits  a  conversion,  does  not  preclude  him  fi-om  bringing 
an  action  against  his  Client  to  recover  the  debt  arising  out 
of  the  advance  made  by  the  Broker  to  purchase  the  stock. 
And  where  a  minor  has  employed  a  Stock-broker  to  buy 
stock  for  him,  and,  on  coming  of  age,  has  repudiated  the 
transaction,  and  retracted  the  authority  given  to  the 
Broker,  a  sale  of  the  stock  bought  by  the  latter,  without 
notice  or  demand  of  payment  on  the  Client,  is  a  tortious 
conversion  of  the  stock;  and  in  an  action  by  the  Broker 
for  the  loss  on  the  stock,  under  such  circumstances  the 
Client  is  entitled  to  recover,  under  a  counterclaim,  the 
amount  deposited  by  him  with  the  Broker  to  cover  mar- 
gins.^ If  a  colorable  sale  has  been  made  by  the  Broker, 
and  subsequently  rescinded,  and  he  regains  possession  of 
the  securities,  he  cannot  make  a  second  sale  without  notify- 
ing his  Client.* 


'  Jerome  vs.  McCarter,  94  U.  S.  did  so,  but,  finding  the  price  rapidly 

734.  Soing  down,  sold  it  for  his  own  pro- 

^  In  re  Grinnell,  9  Xat'l   Bankr.  tection;  and,  on  the  refusal  of  his 

Reg.  137.  princijjal  to  ratify  the  sale,  replaced 

If  a  Broker  makes  a  general  it,  and  tendered  the  elevator  re- 
assignment or  becomes  bankrupt,  a  ceipts.  The  principal  refused  to 
demand  by  a  customer,  followed  by  receive  them,  and  the  Broker  sold 
tender,  is  not  necessary.  And  tlie  the  corn.  Both  sales  were  made  at 
same  rule  applies  to  banlcruptcy  a  loss,  and  the  Broker  sued  his  prin- 
followed  by  a  general  assignment,  cipal  for  damages.  Held,  that  in 
In  re  Swift,  112  Fed.  Rep.  315.  estimating   damages   the   first  sale 

^  Heath  vs.   Mahoney,    24     Hun  was  immaterial  (Gregory  vs.  Wen- 

(N.  Y.),  341;  s.  c.  reported  more  dell,  40  Mich.  432). 
fully,  12  X.  Y.  Weekly  Dig.  404.     A       *  Leahy  vs.  Lobdell,  90  Fed.  Rep. 

Broker  commissioned  to  buv  corn  665. 


Notice  of  Sale. 


353 


This  right  to  notice  of  sale,  however,  may  be  waived, 
either  expressly'  or  by  implication;  or,  where  there  has 
been  no  notice,  or  an  insufficient  notice^  the  proceedings 
thereunder  may  be  conhrmed  or  ratilied  by  the  acts  of  the 
pledgor.^ 


'  A  bona  fide  sub-pledgee  for 
value  may  sell  the  securities  at  pub- 
lic or  private  sale  without  notice, 
when  the  contract  of  sub-pledjie 
expressly  so  provides,  and  this  riglit 
Ls  not  affected  by  notice  from  the 
orisinal  pledgor,  unless  the  latter 
pays  or  tenders  the  amount  of  the 
sub-pledge.  Thompson  vs.  Bank, 
113  X.  Y.  32S.  See  also  Williams 
vs.  Trust  Co.,  133  X.  Y.  660.  But 
if  there  is  no  such  special  agreement 
to  sell  vs-ithout  notice,  the  sub- 
pletlgee  Is  guilty  of  conversion  when 
he  sells  without  demand  of  the  sul)- 
pledgor  of  payment,  and  without 
notice.  Smith  vs.  Savin,  141  X.  Y. 
328.  If  the  contract  of  pledge  au- 
thorizes a  private  sale  "without  ad- 
vertisement or  notice,  which  are 
hereby  expressly  waived,"  notice 
of  the  sale  need  not  be  given  either 
to  the  pledgor  or  the  public.  A 
mere  authorization  of  a  private  sale 
Ls  an  irnplie<l  waiver  of  the  notice. 
Dullniu'  vs.  Weekes,  40  S.  W.  Rep. 
CTex.)  178. 

Although  notice  is  dispcn-sed 
with,  Stock-brokers  mu«t  however 
make  the  sale  in  good  faith  and  in 
the  exercLse  of  a  sound  judgment 
when  they  consider  the  state  of 
the  market  warrants.  Wick.s  vs. 
Hatch.  62  X.  Y.  .Wr,. 

'  Hparhawk  vs.  DrexH,  12  .Vat'l 
Bankr.  Reg.  450;  fJniman  vs 
Smith.  81  X  Y  2.-.:  n-v'-  12  J.  S:  S. 
0'> 


389;  Stenton  vs.  Jerome,  54  X.  Y. 
480;  Milliken  vs.  Dehon,  27  id.  364; 
ChUd  vs.  Hugg,  41  Cal.  519;  Bryson 
vs.  Rayner,  25  Md.  424;  Hyatt  vs. 
Argenti,  3  Cal.  151;  Loomis  vs. 
Stave,  72  111.  623;  Md.  Fire  Ins.  Co. 
vs.  Dalrymple,  25  Md.  242-264; 
Colket  vs.  Ellis,  10  Phila.  375;  s.  c. 
32  Leg.  Int.  82;  Baltimore  Marine 
Ins.  Co.  vs.  Dalrymple,  25  Md.  260; 
Hamilton  vs.  State  Bank,  22  la. 
300;  Clark  vs.  Bouvain,  20  La.  Ann. 
70;  Searing  vs.  Butler,  69  111.  575. 
But  see  Kenfield  vs.  Latham,  2  Cal. 
Leg.  Rec.  235.  Where  it  appears 
from  the  Client's  own  admission  that 
he  never  intended  to  pay  for  and 
take  up  the  stock,  he  is  estopped 
from  complaining  of  want  of  notice 
of  sale,  or  any  other  informality  in 
connection  with  it.  The  object  of 
the  notice  Ls  to  enable  a  part}'  to 
come  forward,  pay  up  and  prevent 
the  sacrifice  of  the  i)leilge,  but  when 
he  says  he  would  not  have  availed 
him.self  of  such  a  notice,  nor  have 
interfered  to  protect  the  stock  by 
paying  the  amount  owed  upon  it, 
what  advantage  would  it  have  been 
to  him  to  have  notice,  "or  what  harm 
could  come  from  the  lack  of  it. 
Vanhorn  vs.  Gilbough,  21  Am.  L. 
H.-g  (n.  h)  171;  10  W.  X.  C.  347. 
A  s.ilr'  of  phnlircfl  securities  may 
be  iii.kIc  witiiout  notice  or  dcm.'ind 
when  (\)  the  parties  have  so  cx- 
|)rcHsly  agrewl,  or  (2)  where  the  debt 


354  Stock-brokers  and  Stock  Exchanges. 

In  Stenton  vs.  Jerome  *  the  question  arose  as  to  how  far 
a  conversion  of  the  Client's  stocks  may  be  waived  by  a  subse- 
quent payment  of  an  apparent  bahince  of  account  to  the 
Brokers.  There  the  B  rokers  had  committed  a  conversion  by 
an  unauthorized  sale  of  stocks,  without  a  previous  demand  of 
marcfin.  This  wronf!:ful  sale  was  made  on  the  11th  of  Janu- 
ary,  18G6,  and  a  notification  of  it  sent  to  the  Client.  On  the 
14th  of  January  the  Brokers  made  up  the  account,  showing 
a  small  balance  due  them,  and  leaving  in  their  hands  as  secu- 
rity for  such  balance  certain  United  States  bonds.  Subse- 
quently the  Client  called  and  complained  of  the  manner  in 
which  she  had  been  treated.  The  Brokers  having  written 
several  letters  stating  that  unless  the  balance  was  paid  they 
would  sell  her  bonds,  she  finally,  being  in  ill-health,  and  her 
husband  having  met  with  a  serious  accident  needing  her  at- 
tention, and  having  pressing  need  for  her  bonds,  wrote  to  her 
Brokers  informing  them  of  these  facts,  and  sent  therewith 
the  balance  of  account ;  thereupon  the  Brokers  delivered 
the  United  States  bonds  to  her  messenger.  She  subsequently 
brought  an  action  to  recover  damages  for  the  unlaAvf ul  con- 
version of  her  stocks.  The  court  of  ultimate  resort,  affirm- 
ing the  judgments  of  the  lower  tribunals,  held  that  the 
action  of  the  Client  in  accepting  the  account  did  not  consti- 
tute an  account  stated  between  the  parties ;  and  that  her 
subsequent  payment  of  the  balance  for  the  purpose  of  ob- 
taining her  bonds  was  not  voluntary,  but  compulsory,  con- 
is  to  be  paid  on  a  specified  day.  the  maturity  of  the  note.  Id.  If 
Chouteau  vs.  Allen,  70  Mo.  290.  a  pledgee  assigns  a  security  which  is 
In  which  case  it  was  also  held  that  not  negotiable,  his  assignee  takes  no 
when  a  note  (the  payment  of  which  greater  title  than  he  himself  pos- 
is  secured  by  a  pledge  of  bonds)  is  sesses.  Id. 
sub-pledged  to  secure  acceptances,  *  54  N.  Y.  480. 
^  sale  of  the  bonds  mav  be  made  at 


Notice  of  Sale.  355 

stituting  a  duress  of  goods.  One  of  the  learned  judges 
held  that  an  action  could  have  been  sustained  to  recover 
back  the  balance  paid  to  the  Brokers ;  and  that  inasmuch 
as  the  present  action  was  one  of  conversion,  it,  having  once 
vested,  could  only  be  discharged  by  release  under  seal  or 
the  receipt  of  something  in  satisfaction.* 

But  where  a  sale  of  mining  stocks  was  made  without  noti- 
fying the  pledgor  to  make  his  margin  good,  and  without  suf- 
ficient notice  of  time  and  place  of  sale,  still,  if  the  pledgor 
knew  of  the  time  and  place  and  made  no  objection,  and, 
after  the  sale,  he  was  presented  with  an  account  in  which 
he  was  credited  the  amount  received  at  the  sale,  and  he  ad- 
raits  the  correctness  of  the  same,  approves  of  the  sale,  and 
promises  to  pay  the  balance  claimed — these  facts  are  suf- 
ficient to  show  a  ratification  of  the  illegal  sale,  and  the 
court  will  not  disturb  the  same.' 

And  where  the  notice  of  sale  was  dispensed  with,  but  de- 
mand for  payment  of  the  debt  was  not,  it  was  held  that 
the  Broker  who  sold  his  Client's  stock  without  notice  and 


'  To  same  effect,  see  Clarke  vs.  either  as  a  waiver  of  the  right  to 

Mei^,  10  Bosw.  (>«.  Y.)  337;  s.  c.  22  notice  of  .sale,  or  as  a  ratification  of 

How.  Pr.  340.     As  to  the  effect  of  the  method  of  sale  adopted,  and  so 

tender,  .see  Talma^^e  vs.  Third  Na-  does    not    require    that    the    proof 

tional  Bk  ,  91  N'.  Y.  531  at  .535.  .should  reach  to  the  conclusiveness 

'Child    vs.    Hugg,    41    Cal.    519;  of  an  account  stated.     Without  an 

Gould  vs.  Trask,    10  \.   Y.  Supp.  actual    agreement    upon    a    precise 

619.     Even  if  after  a  wrongful  sale,  balance  and  a  promise  to  pay  it, 

the  Broker  presents  an  account  to  there  may  still  l>e  such  a  promi.se  on 

the  Client  showing  surh  sale  and  a  the  part  of  the  Client  a.s  nece.s.sjirily 

resultant  lf>ss,  and  the  Client  with-  recoi;ni/.os    and     ratifies    the    .sales 

out  (jhjection  to  the  tnaniuT  of  sale  made   and   t!ie   met  hex!    whieli   the 

promi.ses  to  settle  the  arcouiit,  this  Broker    hii-s    pursued.     Gillett    vs. 

promi.se  is  fonrlusive  upon  liim,  and  Whiting,  141  N.  Y    71,  73;  s   c.  120 

the    Broker   may   recover   the   loss  \    Y.  402,  U)Ct.     .See  also  u[)()n  this 

The    promi/»e    mav    Ix-    considered  point,  p.  212. 


356  Stock-brokers  and  Stock  Exchanges. 

without  dcinund   was  guilty  of  a  conversion  of   the  stock, 
and  was  liable  in  damages.' 

AVhere,  however,  there  has  been  a  waiver  of  demand,  or 
of  notice  of  time  and  place  of  sale,  there  is  still  an  obligation 
resting  upon  the  pledgee  to  act  with  entire  good  faith,  and 
to  sell  the  securities  for  the  highest  price  that  he  can 
obtain."^ 

(d.)  Place  of  Sale. 

The  preliminary  steps  liaving  been  properly  taken,  the 
next  inquiry  is  as  to  the  j)laee  where  the  sale  should  be 
made.  In  the  case  of  an  ordinary  dealing  in  stocks,  where 
a  Client  orders  his  Broker  to  buy  or  sell,  the  j^lace  where 
the  purchases  or  sales  are  to  be  made  is  at  the  Stock  Ex- 
change, unless  the  Broker  is  otherwise  directed.  That  is 
the  place  where  transactions  of  this  description  are  custom- 
arily made,  and,  by  employing  a  Stock-broker,  the  Client 
impliedly  authorizes  him  to  perform  the  business  in  the 
manner  and  at  the  place  established  by  local  usage.''  And, 
on  the  other  hand,  the  Broker,  in  his  dealings  for  his  Client, 
is  likewise  restricted  by  usage,  and  he  violates  his  instruc- 
tions by  buying  or  selling  in  any  other  manner  or  place  than 
that  which  usage  justifies.^ 

J>ut  what  is  more  particularly  intended  in  this  connection 
is  to  ascertain  the  proper  place  for  buying  or  selling  the 

'  Kenfield  vs.  Latham,  supra.  failure,  after  notice,  to  put  up  mar- 

^  Sparhawk  v.s.   Drexel,   12  Xat'l  gin,    rea-sonable   notice  of  the  time 

Bankr.  Reg.  450,  at  471  and  472;  and  place  of  sale  mu.st  nevertheless 

Genet  vs.  Rowland,  4.5  Barb.   (N.  be  given.     Rothschild  vs.  Allen,  86- 

Y.)  560;  Covell  vs.  Loud,  135  Mass.  N.  Y.  Supp.  42. 

41.     See  also  Rogers  vs.  Wiley,  131  ^  Rosenstock  vs.  Tormey,  32  Md. 

N.  Y.  527;  Fitzgerald  vs.  Blocher,  169. 

32  .\rk.  742;  and  cases  just  cited,  ^  Id.;  see  also  title  "Usages." 

ante,  p.  355.     Even  though  there  is 


Place  of  Sale.  357 

stocks  where  the  Chent  is  in  default  of  margins  after 
proper  demand  and  notice,  or  where  the  Broker  desires  to 
close  the  transaction  and  the  Client  refuses  to  "  buy  in  "or 
receive  the  stocks  which  are  being  "carried"  for  his  ac- 
count, or  to  authorize  the  Broker  to  do  so. 

In  the  first  place,  where  the  Client  is  "  short ''  of  stocks, 
and  by  a  rise  in  the  price  his  mai'gin  is  exhausted,  it  would 
seem  to  be  reasonable  that  the  Broker,  after  due  demand  and 
notice,  should  be  at  liberty  to  "  buy  in "  the  stocks  and 
close  the  transaction  at  the  Stock  Exchange.  The  very 
nature  of  a  ""  short''  sale  requires  that  the  Broker  should 
make  the  purchase  at  the  Exchange,  which  is  always  open, 
and  where  stocks  may  be  bought  at  any  time  during  the 
regular  hours  of  business.  It  would  be  absurdly  incongru- 
ous to  hold  that  where,  on  a  short  sale,  the  Client  was  in 
default,  the  Broker  should  be  required  to  make  the  purchase 
of  the  stock  at  public  auction.  The  Broker  would  have  no 
power  to  compel  a  public  auction  to  be  held,  or  to  force  any 
one  to  j)utup  the  kind  and  amount  of  stocks  which  he  de- 
sired to  buy.  There  would  therefore  seem  to  be  no  room 
for  doubt  that  the  Broker,  in  such  a  case,  could  make  the 
purchase  at  the  E.xchange.' 

But  a  different  and  more  difficult  question  arises  in  a  case 
where  a  Client  is  "long"  of  stocks  and  the  Broker  is  carry- 
ing them  for  his  account.  In  this  event,  as  has  been 
observed,  the  Broker  occupies  the  relation  of  a  pledgee  to 
his  Client,  and  uj)on  failure  of  the  latter  to  supply  proper 
margins  to  inet^t  the  fluctuations  of  the  markci  he  may, 
after  proper  notice  to  th<i  Client,  as  we  have  seen,  sell  the 
same.     Where?     Is  the  answer  to  b<!  detei-inined  in  piM'cisely 

'  .S«'o  iiutlifiriti«»s  citfil  unt*',  uii<I«t  (-sixfciHlly  KikjwUoii  vh.  I'itch,  .'ili 
i  VII.,  upfK-Ttaiiiin;;  to  u  hliort  Hule,    .%'.  Y.  2H8. 


368  Stock-brokers  and  Stock   Kxchauj^es. 

the  same  iiuiimer  as  if  the  case  were  one  ol"  pure  pledge,  as, 
for  instance,  where  money  is  advanced  upon  the  security  of 
personal  })roperty  and  the  pledgor  refuses  to  redeem  it? 
Or,  will  the  courts  take  into  consideration  the  inipor-tant 
element  of  usage,  and  hold  that  a  sale  made  at  the  Ex- 
change is  binding  upon  the  Client?  The  general  principle 
is,  that  the  pledgee  of  stocks  must  sell  the  same  at  public 
auction.' 

The  rule  confining  the  place  of  sale  to  a  ])ublic  auction  is 
very  old  and  uniform.  The  theory  of  the  law  is,  that  the 
sale  should  be  made  at  some  place  where  all  the  parties 
interested  may  have  an  opportunity  to  attend  and  see  that 
it  is  fairly  conducted  ;  that  the  pledgor  may  exert  himself 
in  procuring  buyers,  and  thus  enhance  the  price,  and  give 
him  the  right  to  redeem  the  pledge  at  any  moment  before 
the  sale  should  be  actually  made.^  And,  in  the  absence  of 
express  agreement  authorizing  a  different  mode,  there  are 
cases  that  undoubtedly  hold  that  mere  local  usage  to  sell 
at  private  sale  cannot  be  allowed  to  modify  this  right  of 
the  pledgor.^  In  furtherance  of  this  general  rule,  the  courts 
have  repeatedly  held  that  a  sale  of  pledged  stocks  cannot  be 
made  at  the  Board  of  Brokers  in  New  York  city,  unless 
there  was  a  stipulation  to  that  effect,  for  the  reason  that  by 
the  regulations  of  the  Board  the  sales  are  essentially  private, 
no  one  beinff  allowed  to  enter  the  room  but  members.* 

'Milliken  vs.   Dehon,   27  N.   Y.  392;    Story    on    Bailm.    (9th    ed.) 

364;  Wheeler  vs.  Newbould,  16  id.  §  310,  note  3;  but  compare  Dykers 

392;  Edwards  on  Bailm.   (3d  ed.)  vs.  Allen,  7  Hill,  497;  Castello  vs. 

§  2S3;  Schouler  on  Bailm.  (2d  ed.)  City  Bank,  1  N.  Y.  Leg.  Obs.  25,  and 

§  230;  Tyler  on  Usury,  etc.,  585  et  other    cases    cited.     Edwards    on 

seq.  Bailm.    (3d   ed.)    §  283,    and   cases 

^  Id.  cited  in  notes  2  and  3. 

^  Brown  vs.  Ward,  3  Duer,  660;  ^  Id;  Wood  vs.  Hamilton,  cited  in 

WTieeler  vs.   Xewbould,   16  X.   Y.  Castello  vs.  City  Bank,  supra;  Ran- 


Place  of  Sale.  359 

It  will  be  observed  that  in  all  of  the  cases  just  cited,  the 
relation  of  pledgor  and  pledgee  existed  between  the  parties, 
hut  that  such  relation  did  not  grow  out  of  speculations 
in  stocks  upon  margins,  save  in  the  case  of  Brass  vs.  "Worth, 
In  that  case,  ho\ve\'er,  the  Brokers  had  sold  the  Client's 
stock  without  any  notice  to  him  that  his  margins  had  be- 
come exhausted,  and  tlie  court  said,  "  The  defendants  claim 
the  right  to  sell  the  property  pledged  without  notice  to  or 
knowledge  of  the  pledgor  the  mouient  prices  sank  so  that 
collaterals  deposited  are  no  longer  equal  to  the  margin  of 
the  five  per  cent  stipulated  in  the  contract ; ''  and  that  this 
fact,  coupled  with  the  sale  being  made  at  the  Board  of 
Brokers,  a  place  that  the  court  held  was  private,  rendered 
the  transaction  nugatory. 

But  the  grounds  upon  which  these  decisions  are  based, 
holding  that  a  sale  at  the  Stock  Exchange,  in  the  absence  of 

kin  vs.  McCullough,  12  Barb.  (N.  procuring  buyers  of  his  stock,  en- 

Y.)  103;  Brass  vs.  Worth,  40  id.  64S.  hance  the  price  and  give  him  the 

But  where  the  limit  of  a  stop  order  right  to  redeem  the  pledge  at  any 

has  been  reached,  the  Broker  may  moment  before  the  sale  should  be 

sell  the  stocks  carried  in  any  usual  actually  made,"  while  in  the  second 

and  ordinary  way  whether  at  the  case,  there  is  no  necessity  for  notice 

Stock  E.vchange  or  at  private  sale,  of  place  of  sale  to  the  Client,  nor  for 

Porter  vs.  Wormscr,  94  \.  Y.  431.  him  to  be  present  in  order  to  get  an 

The  difference  between  the  case  of  adequate  price  for  his  stock.     He 

a  compulsory  sale  by  a  Broker  on  has  him.solf  fi.xcd  the  price  of  sale  in 

default  of  his  Client  to  furnish  mar-  his  stop  order,  and  the  Broker  is  at 

gin,  where  the  sale  mast  be  liv  pub-  liberty  to  follow  any  usual  and  ordi- 

lic  auction,  and  cases  such  as  Porter  nary  method  of  selling  so  long  as  he 

vs.   Wormser,   \»  this:   In   the  first  obtains  that  price, 

case,  as  stated  in  the  text  Cp.  3.58),  There  is  in  effect  a  waiver  by  the 

"the  theory  of  the  law  Ls  that  the  Client  of  notice  of  place  of  sale,  and 

Hale  should  be  inmle  at  some  pla<*  an  authority  to  the  liroker  to  ob- 

wherc  all  the  parties  interested  iimy  tain  a  certain  price      Tliis  price  l>c- 

luive  an  opportunity  t(»  attend  and  ing    obtaine<l    it    is    inunatcriul    by 

see  that  it  is  fairly  roiiductcd;  that  what  method  of  sale  it  was  done, 
the   pledgor  may  exert  himjielf  in 


360  Stoek-brokors  aiul  Stock   Kxchaii^es. 

express  agreement,  is  invalid,  will,  \v(i  think,  when  carefully 
examined,  be  found  fault}'  and  untenable  at  the  present  day. 
In  the  lirst  place,  a  sale  at  the  Stock  Exchange  is  not  in  any 
broad  sense  made  lyrivatehj  ;  it  is  in  almost  every  respect  a 
public  sale.  While  it  is  true  that  the  Stock  Exchange  is,  to 
a  certain  extent,  a  private  organization,  from  which  all  per- 
sons are  sedulously  excluded  who  are  not  members,  yet  it  is 
the  great  mart  for  disposing  of  and  establishing  the  prices 
of  stocks ;  and  in  no  public  exchange  could  they  be  sold  to 
better  advantage.  And  although  strangers  are  not  allowed 
to  attend  and  bid,  they  can  always  be  represented  by  Bro- 
kers of  their  ow^n  choosing,  who  will  carry  out  the  wishes 
of  their  principals. 

In  Sparhawk  vs.  Drexel  ^  Cadwalader,  J.,  in  overruling 
an  objection  to  a  sale  made  at  the  Stock  Exchange,  says : 
"As  to  the  mode,  1  am  not  aware  of  any  reason  that  the 
sales  should  have  been  by  auction.  On  the  contrary,  I 
think  that,  considering  the  nature  of  the  securities,  this 
•would  not  have  been  an  advantageous  mode  of  disposing  of 
them,  if  there  was  a  fair  market  for  them  at  the  Stock  Ex- 
change, or  Brokers'  Board,  -where  the  ruling  prices  ordi- 
narily fix  the  standard  value,  from  time  to  time,  of  such 
securities.  If  the  times  of  sale  were  proper,  this  mode 
was  unobjectionable."  In  that  case,  however,  there  was 
an  express  authority  to  sell  at  public  or  private  sale. 

It  seems  almost  absurd  to  call  a  great  mart  like  the  Stock 
Exchange  a  private  place,  in  face  of  the  patent  fact  that  all 
prices  are  established  there ;  yet,  as  has  been  seen,  the 
above  cases  hold  that,  in  the  absence  of  an  agreement  giving 
the  pledgee  a  right  to  sell  privately,  a  sale  at  the  Board  of 

1  12  Nat'l  Bankr.  Reg.  450,  at  470. 


Place  of  Sale.  361 

Brokers  does  not  answer  the  requirements  of  the  general  law 
of  pledges,  requiring  a  sale  of  the  pledge  to  be  at  public 
auction. 

In  the  second  place,  the  closing  of  a  speculative  transac- 
tion in  stocks  is  different  from  that  of  an  ordinary  pledge. 
The  parties  to  a  stock  speculation  intend  that  the  trans- 
action shall  be  carried  on  and  consummated  at  the  Stock 
Exchange ;  indeed,  there  is  no  other  place  where  such  a 
speculation  can  be  engaged  in.  It  is,  therefore,  but  reason- 
able that  the  Broker  should  be  allowed,  after  giving  all 
necessary  preliminary  notices,  to  close  the  transaction  by  a 
sale  of  the  stocks  at  the  Stock  Exchange,  and  the  introduc- 
tion of  the  usages  of  Stock-brokers  might  go  very  far  to- 
wards effecting  this  result. 

This  was  the  view  adopted  by  the  Court  of  Appeals  of 
Maryland  as  earl v  as  ISGG,'  after  a  review  of  the  Xew  York 
cases  holding  to  the  contrary.  The  court  said  :  "...  Con- 
sidering the  requii-ements  of  the  law,  and  the  reason  and  na- 
ture of  the  transaction,  we  are  of  the  opinion  that  the  most 
proper  and  suitable  place  for  a  sale  of  stock  is  at  the  Board 
of  Bnjkers.  There  is  the  Stock  Market — the  mart  to  which 
vendors  and  purchasers  resort,  by  their  agents,  to  buy  and 
sell  st<x;k,  where  com])etition  among  bidders  is  most  apt  to 
be  found.  Such  sales  are  public;  ;  ;uul  unk'ss  there  be,  in 
the  particular  case,  some  ground  for  inipoaching  their  fair- 
ness, we  are  of  opinion  they  are  rL'asonal)Ie  and  ouglit  to  bo 
supported.''  And  this  doctrine  was  afterwards  expressly 
confirmed  by  the  same  court.'' 

'  Md.  Fire  Ins.  Co.  vs.  Dulrymple,  Andrews,  J.,  in  Sistaro  vs.  Best,  S8 

2T)  M<1   2l2-2Gr).  N.  Y.  .W  J,  in  reH|)e<t  to  h  side  at  tlie 

'  lUi^'WHiwV.  vs.  Tonnoy,  ."12  .Md.  New  York  Stock   IOxclian;;<'.      And 

169.     Similar  languaj^c  was  u-scd  by  tlie  .New  York  Court  of  Appeals  in 


B62 


Stock-brokers  and  Stock  Exchanges. 


And  it  has  been  held '  that  where  a  pledgor  is  notified 
that  a  sale  of  his  stocks  will  be  made  at  the  Board  of  Brokers, 
if  he  is  dissatisfied  with  the  place  of  sale,  he  must  prom})tly 
dissent,  or  his  silence  will  be  understood  as  an  acquiescence. 
In  Djkers  vs.  Allen,^  however,  the  Supreme  Court  of  New 
York  held  that  Avhere  authority  was  given  to  sell  stock  at 
the  Board  of  Brokers,  the  sale  must  be  openly  made.  The 
court,  upon  this  point,  said  :  "  The  authority  to  sell  the 
stock  in  question  at  the  Board  of  Brokers  for  the  payment 
of  the  debt,  if  such  debt  was  not  paid  when  it  became  due, 
did  not  authorize  the  pledgees,  even  if  they  had  retained 
the  stock  in  their  own  hands,  to  put  the  same  up  secretly. 


holding  that,  in  ascertaining  the 
"actual"  value  of  stock,  for  the 
purposes  of  taxation,  the  commis- 
sioners of  assessment  might  proba- 
bly have  done  injustice  to  the 
relator,  in  taking  the  book  value  in- 
stead of  the  market  value  of  the 
stock,  said  (People  vs.  Coleman,  107 
N.  Y.  5-14) :  "So  the  market  value  of 
the  shares  of  capital  stock  may 
sometimes  be  above  and  sometimes 
below  the  actual  value.  Such  value 
may  be  greatly  enhanced  or  de- 
pressed for  speculative  purposes 
without  any  change  in  the  actual 
value.  But  the  market  value  of 
any  stock  which  is  listed  at  the 
Stock  Exchange  in  New  York,  and 
largely  dealt  in  from  da}'  to  da}'  for 
a  series  of  months  will  usually  fur- 
nish the  best  measure  of  value  for 
all  purposes.  The  competition  of 
sellers  and  buyers,  most  of  them 
careful  and  vigilant  to  take  account 
of  ever}'thing  affecting  value  of 
stock  in  which  they  deal,  and  each 
mindful  of  his  own  interests,  and 


seeking  for  some  personal  gain  and 
advantage,  will  almost  universally, 
if  time  sufficient  be  taken,  furnish 
the  true  measure  of  the  actual  value 
of  the  stock."  The  court,  however, 
added:  "But  there  is  no  law  which 
compels  assessors  to  resort  to  mar- 
ket value  to  find  the  actual  value  of 
capital  stock.  That  standard  is 
sometimes  illusory  and  untrust- 
worthy. The  buyers  or  sellers  may 
be  too  few,  and  the  transactions  not 
sufficiently  numerous  to  furnish  a 
real  test  of  value."  See  Walter  vs. 
King,  supra,  p.  380,  cited  in  Brod- 
hurst  on  "Stock  Exchange  Law  " 
p.  215;  see  also  in  this  connection 
Schepelervs.  Eisner,  3  Daly  (N.  Y.), 
11,  which,  however,  is  in  effect 
overruled  by  Markham  vs.  Jaudon, 
41  X.  Y.  235;  and  the  question  was 
raised,  but  not  decided,  in  Child  vs. 
Hugg,  41  Cal.  519;  Laws  of  X.  Y.  of 
1891,  c.  .34. 

'  Willoughby  vs.  Com.stock,  3  Hill 
(X.  Y.),  .389. 

2  7  Hill  (X.  Y.),  497. 


Place  of  Sale.  363 

But  they  should  have  put  up  the  stock  openly,  and  offered 
it  for  sale  to  the  highest  bidder  at  the  Board  of  Brokers, 
stating  that  it  was  stock  \Yhicb  had  been  pledged  for  the 
security  of  this  debt,  and  with  authority  to  sell  it  at  the 
Board  of  Brokers  if  the  debt  was  not  paid.  In  this  way 
only  the  stock  would  be  likely  to  bring  its  fair  market 
value  at  the  time  it  was  offered  for  sale.  And  in  this  way 
alone  could  it  be  known  that  it  was  honestly  and  fairly 
sold,  and  that  it  was  not  purchased  in  for  the  benefit  of  the 
pledgees  by  some  secret  understanding  between  them  and 
the  purchasers." 

Altogether,  the  laAv  upon  this  subject  is  in  a  very  unsatis- 
factory condition  ;  and  if  the  remarks  just  quoted  are  ac- 
cepted as  correct,  it  is  rendered  even  more  uncertain.  But 
■we  believe  that  the  rule  is  otherwise,  and  that  an  authority 
to  sell  at  the  Board  of  Brokers  includes  the  power  to  sell  in 
accordance  with  the  ways  and  manner  in  which  sales  are 
ordinarily  conducted  at  that  place. 

A  statement  preceding  the  sale,  that  the  stocks  were 
being  sold  to  close  a  transaction,  as  indicated  above,  would 
not  enhance  the  price  of  the  same,  and  would  be  of  no  con- 
ceivaljle  benefit  to  the  pledgor.'  Upon  the  whole,  we  are 
inclined  to  think  that,  taking  into  consideration  the  char- 
acter of  a  sj^eculative  transacti(ni  in  securities  on  margin, 
the  courts  would  uphold  a  sale  at  the  Stock  Exchange  for 
the  reasons  licretoforc  advanced.  AVhere  several  different 
kinds  of  st(jck  are  pledged  as  security  for  ditfercnt  loans,  a 
judgment  directing  a  sale  in  gross  of  all  the  stocks  is  erro- 
neous.    Unless  the  several  stocks  are  pledged  as  security  for 


'  See,  as  generally  siistaiiiiiiK  the    N.  Y.  .Wr);  Of^deu  vh.  I-jilhrop,  M  id. 
above  viewn,  WickH  vh.  IIuUli,  02    158;  Quincey  vs.  White,  03  id.  370. 


3G4  Stock-brokers  and  Stock  Exchanges. 

the  same  debt,  it  is  not  proper  to  apply  the  jjroceeds  to  the 
payment  of  the  entire  indebtedness.' 

The  doctrine  of  waiver  may  exercise  a  very  important  in- 
fluence on  all  the  questions  heretofore  discussed  ;  because  it 
has  been  held,  in  a  number  of  cases,  that  the  pledgor  may 
waive  his  right  not  only  to  a  notice  of  sale,  but  as  to  the 
manner  and  place  where  the  sale  should  be  made.  This 
waiver,  moreover,  need  not  be  expressly  entered  into  by 
the  pledgor,  but  it  may  be  inferred  by  the  court  from  the 
nature  of  the  transaction,  or  the  surrounding  circumstances 
thereof.^  And  the  pledgor  may  waive  his  rights  to  ol)ject 
to  the  informality  of  the  proceedings  of  the  sale  of  the 
pledged  article  by  conduct  on  his  part  amounting  to  a  ratifi- 
cation.^ So  acquiescence  by  a  principal  in  the  wrongful 
acts  of  his  agents,  to  amount  to  a  ratification,  must  have 
been  continued  for  some  length  of  time,  and  the  principal 
must  have  been  cognizant  of  his  rights.^  A  principal, 
however,  is  not  necessarily  to  be  deemed  to  have  ratified  a 
wrongful  act  of  his  agent  so  as  to  exempt  the  agent  from 
liability  to  him,  merely  because  he  does  not  notify  to  the 
agent  his  dissent  at  the  earliest  possible  opportunity  after 
being  informed  of  the  wrongful  act.'"'  But  the  ratification 
may  be  inferred  from  circumstances,  as  where  the  agent 
exceeds  his  authority  a  subsequent  assent  may  be  inferred, 

»Mahoney  vs.  Caperton,  1.5  Cal.  Ellis,  10  Phila.  375;  s.  c.  32  Leg. 

313.  Int.  82. 

^  See   cases   heretofore    cited,    p.  ^  Hamilton   vs.    State    Bank,    22 

353.     Brj-son  vs.   Rayner,   25  Md.  Iowa,  306;  Child  vs.  Hiisj-;,  41  Cal. 

424;  Hyatt  vs.  Argenti,  3  Cal.  151;  519;  Clark  vs.  Bouvain,  20  La.  .\nn. 

Loomis  vs.  Stave,  72  111.  623;  Md.  70. 

Fire  Ins.  Co.  vs.  Dalrymple,  25  Md.  *  Brass  vs.  Worth,  40  Barb.  (X. 

242,  264;  Baltimore  Marine  Ins.  Co.  Y.)  648. 

vs.  Dalrv-mple,  id.  269;  Colket  vs.  ^Clarke  vs.  Meigs,  10  Bosw.  (N. 

Y.)  338. 


Sale  or  Purchase.  365 

and  the  law  will  consider  it  as  equivalent  to  an  express 
ratification.' 

{p.)  Broker  Cannot  Sell  or  Purehase. 

The  general  rule  of  law  which  governs  the  relation  of 
principal  and  agent  is  aj^plicable  to  that  existing  between  a 
Stock-broker  and  his  Client;  and  it  is  well  settled  that  an 
agent  cannot,  without  the  knowledge  and  consent  of  his 
principal,  either  sell  to  or  buy  from  the  latter. 

The  principle  is  based  upon  the  obvious  reason,  that  the 
position  of  an  agent  being  one  of  trustand  confidence,  many 
frauds  and  undue  advantages  \V()uld  creep  in  if  the  law 
sanctioned  his  dealing  with  his  principal  in  his  own  behalf. 
Such  a  transaction  is  therefore  considered  a  breach  of  the 
agent's  duty,  and  the  contract  is  subject  to  rescission,  irre- 

'  Searing  vs.  Butler,  69  111.  575.  repudiated.     Peters    vs.    Edwards, 

As  to  what  will  con-stitute  an  admis-  95    X.   Y.   659   (no  opinion),   aff'g 

sion  and  ratification  of  the  acts  of  judgment  of  the  General  Term  of 

a  Stock-broker  in  a  series  of  stock  the  court  of  Common  Pleas  in  the 

speculations,  see  Saltus  vs.  Genin,  3  same   case,    sub   nom.,   Baj'ard  vs. 

Bosw.  CS.  Y.)  250.     The  failure  to  Edwards,  on  report  of  a  referee,  not 

object  to  the  sale  for  nearly  a  month  reported.     The   report   of   the   ref- 

after  prompt  notice  that  the  stock  eree,  and  the  opinion  of  Van  Brunt 

had    been     sold,    amounted     to    a  and   \'an   Iloeseii,   JJ.,   at  General 

ratification.        Vanhorn     vs.       Gil-  Term  will  be  found  in  "Cases  in  the 

bough,    Jl    .\m.    Law    Reg.    N.  S.  Court  of  Appeals,"  July,   IHS'.i,  lo 

171;  10  \V.  N.C.  347.     See  supra,  July,  ISSl,  vol.  703.     As  to  what 

p.  351,  on  this  question  of  waiver,  acts  of  the  customer  will  constitute 

Although  Brokers  have  been  guilty  a  waiver  of  any  defect  in  the  notice, 

of  conversion  by  a  sale,  without  no-  see  Quinlan   vs.    Raymond,    X.   Y. 

tice.of  Hccuriticw  carried  on  margin,  Daily  Rtg.  July  29,  1KS(>,  in  which 

the    fact    that    the    Client    Kubse-  cjise  it  w.ls  also  hold  that  although 

fjuently  promi.>*es  that  the  Brokers  the   notice*  wjus  defective,  the   Bro- 

Hhall    not    lo.sc    anything,    and    de-  kers    migiit    n'cover,     unless    their 

po«its  stocks  with  them  to  secure  claims  miirht  be  offset  by  any  dain- 

his   indcbtcilncss,    is   a   substantial  as;e  the  cu.stomer  may  have  sufTered. 

ratification   of   the  sale,   and   such  AfT'd  on  other  ground.^,  3  St.  Bep. 

ratification    cannot    be    afterwards  573.     But     actual     knowledge     of 


366 


Stock-brokers  and  Stock  Exchanges. 


spective  of  any  question  of  intentional  fraud  or  actual  in- 
jury.' 

The  law  rejects  indiscrirainately  all  transactions,  whether 
purchases  from  or  sales  to  the  agent,  and  whether  there  is 
anv  evidence  or  intention  of  fraud  or  not.^    The  mere  fact 


principal  must  lie  shown  to  cstat>- 
lish  ratification.  Harris  vs.  Turn- 
bridge,  83  N.  Y.  92. 

>  Conkey  vs.  Bond,  36  X.  Y.  427; 
Taussig  vs.  Hart,  49  id.  301;  also 
s.  c.  58  id.  425;  Marvin  vs.  Weeks, 
62  Barb.  468;  Smith  vs.  N.  Y.  Stock 
and  P.  Clearing  House,  25  N.  Y. 
Supp.  261 ;  Porter  vs.  Woodruff,  36 
N.  J.  Eq.  174;  Porter  vs.  Wormser, 
94  N.  Y.  431,  447;  Day  vs.  Jame- 
son, 33  N.  Y.  St.  Rep.  375;  Man- 
ville  vs.  Lawton,  19  N.  Y.  Supp. 
587;  Prout  vs.  Chisolm,  21  App. 
Div.  57;  Pickering  vs.  Demeritt, 
100  Mass.  416;  Day  vs.  Holmes,  103 
id.  306;  Quincey  vs.  White,  63  \.  Y. 
370;  Robinson  vs.  MoUett,  L.  R.  7 
H.  L.  Eng.  &  I.  App.  Cas.  802; 
Brookman  vs.  Rothschild,  3  Sim. 
153,  224;  s.  c.  H.  L.  5  Bligh  (n.  s.), 
165;  2  Dow.  &  CI.  188;  Crull  vs. 
Dodson,  Macn.  Sel.  Cas.  114;  Marye 
vs.  Strouse,  5  Fed.  Rep.  483;  Gillett 
vs.  Peppercorne,  3  Beav.  78;  Kim- 
ber  vs.  Barber,  L.  R.  8  Ch.  App.  .56; 
Bentley  vs.  Craven,  18  Beav.  76; 
Trevclyan  vs.  Charter,  9  id.  140; 
Dunne  vs.  English,  L.  K.  IS  Ivj. 
524;  Maturin  vs.  Tredennick,  9  L. 
T.  82;  s.  c.  10  L.  T.  331 :  Commonw. 
vs.  Cooper,  15  Am.  Law  Rep.  360. 
Nor  can  the  Broker  sell  to  a  firm  of 
wliich  he  is  a  member  (Martin  vs. 
Moulton,  8  X.  H.  .504);  4th  Kent's 
Comm.  (7th  ed.)  475.  See  also  id. 
14th  ed.     N'or  may  a  Broker  buy 


from  his  partner  to  .sell  to  his  Client. 
Connor  vs.  Black,  119  Mo.  126;  24 
S.  W.  Rep.  1S4.  And  authority  to 
sell  to  any  person  whatsoever  does 
not  authorize  the  Broker  to  become 
the  purchaser  himself.  Hamilton 
vs.  Schaack,  16  W.  D.  (X.  Y.)  423. 
See  also  Butcher  vs.  Krauth,  14 
Bush  (Ky.),  713;  Worn  vs.  Fry,  84 
Cal.  256.  But  a  corporation  which 
does  brokerage  business,  may  le- 
gally sell  to  another  corporation, 
some  of  the  officers  of  which  are 
officers  of  the  former  corporation, 
in  the  absence  of  evidence  that  the 
customer  was  prejudiced.  Van 
Dusen-Harrington  Co.  vs.  Junge- 
blat,  77  N.  W.  270.  If,  however, 
an  agent  is  given  an  interest  in  a 
contract  which  he  is  authorized  to 
make,  such  a  contract  is  voidable  at 
the  election  of  the  principal.  Smith 
vs.  Seattle,  L.  S.  &  E.  Ry.  Co.,  72 
Hun,  202. 

^  The  rule  is  intended  to  be  pre- 
ventive of  the  possibilit}'  of  wrong, 
as  well  as  remedial  of  actual  wrong 
done,  and  is  rigidly  enforced.  It 
involves  a  question  of  public  policy 
and  is  applied,  although  perfect  good 
faith  was  intended  and  no  loss  has 
been  sustained.  Mayo  vs.  Knowl- 
ton,  16  Daly,  245.  But  if  Stock-bro- 
kers deal  in  securities  on  their  own 
account  they  may  sell  such  bonds  as 
vendors  to  their  Clients  as  vendees. 
The  relations  between  them  is  then 


Sale  or  Purchase.  367 

of  a  purchase  b}'  an  agent  t'roui  his  principal,  without  the 
knowledge  of  the  latter,  i'j)so  facto  vitiates  the  transaction. 
Hence  it  would  seem  that  although  the  agent  paid  the  full 
market  value  for  the  article  in  question,  and  that  no  higher 
price  could  be  obtained,  3'et  there  is  no  answer  in  the  mouth 
of  the  agent  to  an  action  to  set  the  transaction  aside. 

But  how  far  should  this  rule  be  followed  in  a  case  where 
the  stocks  are  sold  or  purchased  by  the  l^roker  at  the  Ex- 
change \  Suppose  A.,  who  has  100  shares  of  stock  in  the 
office  of  a  Broker,  directs  the  latter  to  sell  the  same ;  can 
the  Broker  himself  purchase  the  stock  at  the  Board  of  Bro- 
kers at  the  market  price  ?  Or  suppose  the  Broker  is  directed 
to  sell  the  stock,  and  by  another  Client  is  directed  to  buy 
the  same  kind  of  stock ;  can  the  Broker  legally  execute 
both  of  the  orders  by  a  simple  transfer  through  his  books 
at  the  market  price  ?  We  should  answer  both  these  ques- 
tions negatively  ;  for,  while  the  Broker  might  show  that  his 
principal  was  just  as  much  benefited  as  if  a  third  person  had 
bought  the  stock,  yet  the  opportunity  for  fraud  would  be 
obviously  too  great  to  establish  any  other  rule.  The  Broker, 
knowing  the  temper  of  the  market,  might  sell  his  Client's 
.stock  when  the  prices  were  lowest,  so  as  to  buy  cheaply  for 
himself.  Or  he  might  sell  the  stocks  when  the  market 
would  not  take  so  many  shares  without  a  great  sacrifice  of 
the  real  ])rice.     Altogether,  the  reasons  seem  to   be   too 

thut  of  vendor  and  vendee,  not  that  olitaiiiablc,  whereas  he  luid  pro- 
of prinripal  and  a^ent.  Porter  vs.  viou-sly  arranf^cd  to  ffoll  the  same 
\Vorm>;cr,  94  N.  Y.  431,  442.  A  stocks  at  15  per  cent  advance,  he 
Stfx-k-broker  may,  if  he  acts  iis  a  will  not  l)e  rharneahlc  witli  such 
principal,  huy  and  resell  at  a  profit,  a<lvanro,  wlicn  the  plainlifT  vendor 
and  even  if  his  a^ont  makes  a  <lid  not  rely  on  the  fra>i(iui(>nt  rcp- 
fraudulent  reprewentation,  viz.,  that  rcsentation.  Taylor  vs.  Guost,  M 
the  prifc  at  which  the  Sto.k-hrokcr  .\.  Y.  262. 
would  purchase  was  the  best  price 


368 


Stock-brokers  and  Stock  Excliauges. 


strong  to  authorize  a  departure  from  the  general  rule,  even 
where  the  sale  or  purchase  takes  })lace  at  the  Open  Board. ^ 
In  the  State  of  jN'ew  Yoik  these  views  have  received  con- 
firmation in  the  case  of  Taussig  vs.  llart,"'^  where  Brokers 
trading  in  stocks  on  a  margin  fur  a  Client  had  ina<le,  among 
other  transactions,  a  purchase  for  tlie  latter  of  !(»(» shares  of 
Pacific  Mail,  which  they  had  subsequently  transferred  from 
defendant  to  themselves,  reporting  to  him  the  existing  mar- 
ket price  and  crediting  him  therefor.     The  court  held  that 


'  This  state  of  facts  occurred  in 
Terry  vs.  Birmiiiiihain  Savinais 
Bank  (Ala.),  13  So.  1 49;  99  Ala.  566; 
but  the  Broker  instead  of  attempt- 
ing to  execute  the  orders  in  the  way 
suggested  in  the  text,  employed  an- 
other Broker  to  openly  bid  on  the 
Exchange,  the  price  limited  in  his 
purchasing  customer's  order  and 
made  the  sale  at  that  price,  which 
was  not  below  the  fair  market  value 
of  the  stock.  It  was  held  that  the 
principle  of  law  that  the  same  per- 
son cannot  be  both  buyer  and  seller 
did  not  apply,  because  here  the  sale 
was  made  bj^  the  Broker  at  the  in- 
stance of  a  pledgee  of  the  stock,  and 
the  objection  to  the  mode  of  sale 
was  made  by  the  pledgor  in  defence 
to  an  action  against  him  for  the  bal- 
ance of  his  debt.  Thus  the  objec- 
tion was  to  the  mode  of  sale  which 
had  been  adopted  by  the  pledgor, 
and  as  it  appeared  that  neither  the 
pledgee  nor  the  purchaser  of  the 
stock  had  any  knowledge  of  the 
Broker's  co-existent  order  to  sell 
and  purchase,  the  above  principle 
was  held  to  be  inapplicable.  This 
is  not  a  conclusive  authority.  Sup- 
pose a  Broker  receives  orders  from 
di£ferent  Clients  —one  to  sell  a  cer- 


tain stock,  the  other  to  buy  the 
same  stock.  As  Broker  for  the 
.seller  it  is  obvious  that  it  is  his  duty 
to  sell  at  the  highest  figure,  and  as 
Broker  for  the  buj^er  his  dut}'  is  to 
purchase  at  the  lowest  figure  and  he 
cannot  properly  serve  the  two  mas- 
ters. It  is  therefore  his  duty  to  in- 
form the  Clients  of  his  dual  employ- 
ment so  that  they  may  withdraw  or 
continue  as  they  choose.  McDevitt 
vs.  Connolly,  15  L.  R.  (Ireland)  500. 
If,  however,  he  does  not  so  inform 
them,  but  executes  both  orders  by 
making  an  entry  on  his  books  and 
sending  bought  and  sold  notices  re- 
spectively to  his  Clients,  and  there- 
upon receives  payment,  having  au- 
thority to  do  so,  for  the  selling 
Client,  the  latter  is  bound  thereby, 
and  the  purchasing  Client  is  entitled 
to  the  stocks,  though  the  Broker  in 
whose  possession  they  remain,  by 
subsequent  bankruptcy  is  unable  to 
pay  the  purchase  money  to  the  sell- 
ing client.  McDevitt  vs.  Connolly, 
supra,  where,  however,  it  was  held 
that  the  Broker  had  no  authority  to 
receive  payment  for  the  vendor  and 
therefore  the  latter  was  still  entitled 
to  retain  the  stocks. 
2  49  N.  Y.  301. 


Sale  or  Purchase.  369 

the  Client  had  the  right  to  treat  the  sale  of  this  stock  by 
the  Brokers  to  themselves  as  voul,  and  to  demand  an  actuid 
sale  of  the  stock,  in  which  event  he  would  incur  the  risk  of 
any  loss  arising  from  its  depreciation,  and  bo  entitled  to  the 
benefit  of  any  rise,  or  he  could  elect  to  ailirm  the  sale  and 
hold  the  Brokers  to  the  price  which  they  had  n'ported  ;  but 
he  could  not  do  both.  If  the  Brokers,  after  taking  the 
stock  to  their  own  account,  sold  it  at  an  advance,  the  Client 
could  charge  them  with  any  profit  realized  by  them  from 
the  transaction,  or  he  might  treat  them  as  having  converted 
the  stock  to  their  own  use,  and  charge  them  with  damages 
for  the  conversion  ;  but  he  could  not  charge  the  Brokers 
with  the  price  or  value  of  the  stock,  either  as  purchasers  or 
as  havinsf  converted  it,  and  at  the  same  time  claim  that  the 
stock  is  undisposed  of,  and  the  account  for  that  reason  not 
closed.^ 

The  rule  we  are  considering  was  likewise  most  impres- 
sively laid  down  by  the  House  of  Lords  in  the  year  1820  in 
the  case  of  Brookman  vs.  Rothschild.*  This  case  arose  out  of 
a  transaction  with  the  well-known  banking  house  of  Roths- 
child. It  appeared  that  the  plaintiff  was  a  holder  of  20,000 
French  rentes.     The  defendant  resided  in  London,  and  dealt 


'  And  a  usane  of  the  Stock  Ex-  the  same.  Ilaniiltoii  vs.  Young, 
change  aiitliorizinji  Brokers  wlio  are  7  L.  R.  (Irehind)  2.S9.  If  a  Stock- 
entitled  to  sell  stock  or  shares  of  a  broker  illegally  acts  for  the  pur- 
custonier  for  the  reahzation  and  cluuser  after  havini;  heen  employed 
payment  of  money  due  to  thcan  l>y  hy  the  seller,  the  purcluiser  although 
Huch  castonier,  to  take  over  to  entitleil  to  rescind  the  contract, 
them-selves,  at  the  price  of  the  day,  cannot  recover  profits  made  by  the 
HtcK-k  or  shares  of  the  customer,  for  Hroker.  Illinirworth  vs.  DeMott, 
which  there  is  an  inadequate  de-  ir)  Atl  Rep.  (N.  J.)  272. 
mand,  where  a  forced  sale  would  ' .'}  Sim.  l.'iS,  ufT'd  in  II.  L.  5 
lower  them  in  sellint;,  is  not  l)indinK  Hli(;h,  IG.*}. 
upon  a  customer  unactpiuinted  with 

24 


870  Stock-brokers  and  Stock  Exchauges. 

largely  in  foreign  securities,  and  had  contracted  for  the 
Prussian  loan  ;  he  was  also  a  }>ai-tiier  with  his  brothers  in  the 
Paris  linn.  The  plaintiff  employed  the  defendant  to  sell  his 
rentes.  The  defendant,  without  the  plaintiff's  knowledge, 
purchased  them  for  himself  and  his  partners,  but  gave. the 
plaintiff  the  market  price.  The  plaintiff  then  purchased 
Prussian  bonds  of  the  defendant,  and  agreed  that  the}' 
should  remain  in  his  hands  as  a  securit}'  for  the  purchase- 
money,  which  remained  unpaid,  but  no  bonds  were  appro- 
priated or  set  apart  for  the  plaintiff.  The  defendant,  h(j\v- 
ever,  had  always  in  his  hands  bonds  to  a  greater  amount. 
Subsequently  defendant  was  directed  to  sell  the  bonds  ;  and 
he  informed  the  plaintiff  that  he  had  sold  them  accordingly, 
and  gave  the  plaintiff  credit  for  the  alleged  price.  The 
plaintiff  then  purchased  115,000  rentes  of  the  defendant, 
which  he  was  to  pay  for  on  a  future  day,  and  the  rentes 
were  then  to  be  transferred  to  him  ;  but  no  rentes  were 
set  apart  for  the  plaintiff  or  identified  as  belonging  to  him. 
Before  the  day  of  payment  arrived,  the  defendant,  by  the 
plaintiff's  desire,  sent  an  order  to  his  partners  to  sell  the 
rentes ;  and  they  subsequently  informed  the  plaintiff  that 
they  had  sold  them  accordingly,  and  gave  the  plaintiff 
credit  for  the  alleged  proceeds.  The  accounts  between  the 
plaintiff  and  defendant  were  afterwards  settled,  and  the 
plaintiff  paid  the  balance  which  appeared  due  from  him  to 
the  defendant.  Four  years  afterwards,  the  plaintiff  having 
discovered  that  the  20,000  rentes  had  been  purchased  by  the 
defendant  and  his  partners,  and  that  there  was  no  appro- 
priation on  the  two  after-purchases,  filed  his  bill  to  have  all 
the  transactions  set  aside.  The  vice-chancellor,  in  an  elab- 
orate opinion,  sustained  the  plaintiff's  claim,  and  set  the 
transaction  aside.      Upon  appeal  to  the  House  of  Lords, 


Sale  or  Purchase.  371 

this  decree  was  unanimously  sustained  without  hearing  the 
respondents.  Lord  "Wynford,  who  delivered  an  opinion  of 
great  force,  but  which  is  extraordinary  in  its  opening,  said : 
"...  I  am  very  sorry  to  say  that,  with  respect  to  one  of 
the  parties  in  this  case,  it  is  perfectly  clear  that  he  is  a  most 
desperate  gambler  in  the  funds,  and  he  has  met  with  that 
fate  which  most  of  those  meet  with  who  become  such 
gamblers ;  for  I  believe,  Avhenever  a  man  puts  his  foot  into 
the  Stock  Exchange,  not  being  a  member  of  that  Stock  Ex- 
change, his  ruin  is  certain,  and  the  only  question  is  a  ques- 
tion of  time.''  lie  then  proceeds  with  his  opinion,  some 
extracts  from  which  vividly  illustrate  the  subject  upon 
which  we  are  treating.  "It  has  been  said  at  the  bar,  that 
if  a  man  in  the  country  sends  to  his  Broker  in  London,  and 
desires  him  to  sell  stock  for  him,  the  Broker  in  L(mdon 
may  take  that  stock  for  himself,  and  charge  him  with  the 
day's  price  on  it.  If  Brokers  in  London  do  this,  I  have  no 
doubt  they  do  it  fairly ;  but  I  will  take  leave  to  say  that 
Brokers  in  London  are  not  to  be  trusted  in  these  things  any 
more  than  any  other  description  of  agents.  If  I  live  in 
Dorsetshire,  and  I  write  to  my  Broker  in  London  to  sell 
my  stock,  I  fancy  that  I  have  the  advantage  of  that 
Broker's  assistance  as  to  the  day  on  uhicli  it  is  pr()j)er  to 
sell.  I  fancy  that,  living  in  London,  he  has  a  knowledge 
of  the  facts  which  will  act  on  the  raai-ket.  If  the  Broker 
in  London,  instead  of  going  to  the  Stock  Market,  or  instead 
of  exercising  a  discretion  as  to  the  period  when  he  sliould 
sell  any  stock,  is  to  take  that  stock  to  him.self,  he  dej)rives 
me  of  the  security  I  have  and  the  conlidence  I  repose  in 
his  skill  and  intelligence;  and  if  then;  is  a  loss  to  mo,  he  is 
the  person  who  takes  .Kivantagc  of  that  loss.  I  take  il  to 
b«;  a  general  priiiciiih;  of  l;i\v  ami   e<juity  that  a  man  cannot 


372  Stock-brokers  and  Stock  £xch:iii^e8. 

be  a  seller  for  ine  and  a  buyer  of  that  projjertj  himself."* 
This  ])rinciple  is  also  foi'cibly  illustrateil  by  the  case  of 
Gillett  vs.  Peppei'ccjrne.'^  There  the  defendant,  a  Stock- 
broker, was  lai-gely  interested  in  the  shares  of  a  water-works 
company,  of  which  he  was  also  an  active  director.  Having 
recommended  the  plaintiff  to  make  investments  therein,  the 
plaintiff  in  May,  1826,  December,  1830,  and  January,  1831, 
respectively,  purchased  through  the  defendant  twenty-five 
shares  in  the  conipan\^,  which  shares  were  transferred  to 
the  plaintiff  by  certain  persons  who  held  them  as  trustees 
for  the  defendant,  and  who  so  held  them  simply  to  enable 
the  defendant  to  malve  a  transfer  of  the  shares  through 
third  parties.  Some  of  the  shares  had,  after  their  purchase, 
been  transferred  by  the  plaintiff  to  his  sons  by  way  of  ad- 
vancement ;  but  they  were  retransferred  the  day  previous 
to  the  institution  of  the  suit.  The  plaintiff  made  the  dis- 
covery of  the  real  nature  of  the  transaction  in  1837 ;  and 
in  1838  he  filed  his  bill  to  set  aside  the  transaction  on  the 
ground  that  it  was  not  competent  for  a  Stock-broker,  or 
agent  employed  to  purchase,  to  sell  his  own  shares  to  his 
principal  in  the  name  of  another  party.  The  court  so  held. 
The  court  found  that  in  one  of  the  transactions  the  de- 
fendant acted  as  a  gratuitous  a^nt  of  the  plaintiff,  but  held 

'  Brookman   vs.    Rothschild   was  Crull  vs.  Dodson,  Macn.  Sel.  Cas. 

followed  in  Bischofscheim  vs.  Bait-  lit;  Hamilton  vs.  Younji,  7  L.  R. 

zer,  20  Fed.  Rep.  890,  and  a  trans-  (Ireland)  289. 

action  in  which  the  Broker  under-  -  3  Beav.  78.  See  also  Skelton  vs. 
took  to  deliver  his  own  bonds  to  his  Wood,  71  L.  T.  616,  in  which  case  it 
Client  was  set  a.side,  and  the  bonds  was  held  that  the  Broker  could  not 
having  subsequently  become  worth-  recover  if  he  bought  stocks,  and  re- 
less,  it  was  held  that  the  loss  should  sold  them  without  his  Client's 
be  borne  by  the  Broker,  and  the  knowledge  and  then  bought  them 
purchase  price  of  the  bonds  be  back  again,  charging  his  Client  with 
stricken  from  his  account.     See  also  the  differences. 


Sale  or  Purchase.  378 

that  this  made  no  difference,  ai\d  that  the  same  principle 
woidd  apply  ;  and  it  refused  to  countenance  such  a  transac- 
tion because  it  was  said  to  be  an  every -day  practice  among 
Brokers.  The  court,  in  its  opinion,  said  that  the  plaintiff 
might  say,  ''  Put  me  in  the  situation  in  which  I  was  before. 
AVhether  these  shares  were  of  greater  value  or  not,  I  do 
not  choose  to  be  at  the  risk  of  selling  the  shares  which  now 
stantl  in  my  name.  The}-  have  been  transferred  to  me  in 
a  manner  which  the  law  does  not  warrant,  and  I  desire  to 
be  placed  in  the  situation  in  a\  hicli  I  should  have  been  if 
the  transaction  had  not  taken  place."  The  court  directed 
that  the  defendant  should  take  back  the  shares,  with  all 
the  dividends  which  had  been  paid  upon  them  ;  and  he 
ought  to  pay  to  the  plaintiff  the  purchase-money,  with  in- 
terest, and  the  costs  of  the  suit.  In  regard  to  the  question 
of  laches  in  discovering  the  fraud  and  bringing  the  suit, 
the  court  said :  "  It  is  not  sufficient  to  say  that  the 
plaintiff,  being  a  proprietor,  might  have  gone  to  the  books 
and  made  a  search,  and  found  out  all  these  matters,  or  that 
the  son,  being  a  director  and  having  the  books  before  him, 
might  have  made  the  search  ;  the  knowledge,  in  my  opinion, 
ought  to  have  been  brought  home  to  the  plaintiff — and  this 
hiis  not  been  dtme."  The  court  also  held  that  the  transfer 
of  the  shares  made  previous  t(3  the  suit  did  not  affect  the 
plaintiff's  right  of  action. 

"When  the  case  of  Taussig  vs.  ilart,'  before  referred  to, 
came  before  the  Court  <jf  Appeals  of  New  Vf)rk  for  a  .second 
time,  the  court  reiterated  the  doctrine  that,  u]>(>n  an  order 
by  a  C'lient  to  buy  stock,  the  iJrokcr  couM  not  deliver  his 
own,  ''for  the  reason  that  tiie  l.iwdoes  not  j)ermiLan  agent 

'  5K  .\.  Y.  125. 


374  Stock-brokers  and  Stock  Exchanges. 

employed  to  purchase  to  buy  of  himself.  It  is  no  reason 
that  the  intention  was  honest,  and  that  the  Brokers  did 
better  for  their  principal  by  selling  him  their  own  stock 
than  they  could  have  done  by  going  into  the  open  market. 
The  rule  is  inflexible,  and  although  its  violation  in  the 
particular  case  caused  no  damage  to  the  principal,  he  can- 
not be  compelled  to  adopt  the  purchase." 

And  the  case  of  Robinson  vs.  Mollett  *  carries  the  principle 
still  further,  by  establishing  the  rule  that  not  even  a  local 
custom  of  Brokers  will  sanction  a  Broker  in  selling  his  own 
goods  to  his  principal,  without  the  knowledge  and  consent 
of  the  latter. 

In  that  case  plaintiff,  a  merchant  in  Liverpool,  gave  or- 
ders to  a  tallow  Broker  in  London  to  buy  certain  quantities 
of  tallow  for  him.  The  Broker  did  not  buy  the  specified 
quantities  from  any  person,  though  he  sent  bought  notes 
in  the  usual  form — "•  Bouglit  of  A.  on  your  account ;"  but, 
both  before  and  after  the  order,  he  bought  from  various 
persons  in  his  own  name  larger  quantities  of  tallow,  pro- 
posing to  allot  to  plaintiff  the  quantities  he  had  desired  to  be 
bought.  On  plaintiff's  refusal  to  accept,  the  Broker  sold 
the  tallow  and  brought  an  action  for  the  difference.  This 
case  was  very  elaborately  argued  by  counsel  and  decided 
upon  several  different  opinions,  the  judges  being  unanimous, 
except  one,  that  the  suit  could  not  be  maintained,  although 
the  evidence  showed  such  a  mode  of  dealing  to  be  the  usage 
in  the  London  tallow  market,  it  appearing  that  the  prin- 
cipal had  no  knowledge  of  it.  And  it  was  further  held  that 
the  mere  fact  of  employing  a  Broker  to  execute  a  commis- 

•  L.  R.  7  H.  L.  Eng.  Sc  I.  App.    Kimber  vs.  Barber,  L.  R.  8  Ch.  56; 
Cas.  802.     See  also  Bank  of  Bengal    AVilson  vs.  Short,  6  Hare,  366. 
vs.  McLeod,  7  Moo.  P.  C.  C.  35; 


Sale  or  Purchase.  375 

sion  as  a  Broker  in  a  market  where  such  usage  prevails 
would  not  make  the  principal  liable;  and  that  mere  usage, 
-without  express  knowledge  and  assent,  could  not  be  ad- 
mitted to  convert  a  Broker  employed  to  buy  for  his  employer 
into  a  principal  to  sell  for  him.  Quoting  the  language  of 
"Willes,  J.,  below,  ]\Ir.  Justice  Mellor  said  that  "  it  is  an 
axiom  of  the  law  of  principal  and  agent  that  a  Broker  em- 
ployed to  sell  cannot  himself  become  the  buyer,  nor  can  a 
Broker  employed  to  buy  become  himself  the  seller,  without 
distinct  notice  to  the  princij)al,  so  that  the  latter  may  object 
if  he  think  proper  ;  a  different  rule  would  give  the  Broker 
an  interest  against  his  duty.-' 

So  in  Massachusetts  it  has  been  hekP  that  an  order  of  the 
Client  to  a  Broker,  to  buy  stock  deliverable  at  the  buyer's 
option  in  GO  days,  does  not  authorize  the  Broker  to  buy 
the  stock  himself  at  3u  days,  and  deliver  it  to  his  Client  at 
the  end  of  60  days  at  an  increased  price  and  interest,  be- 
sides the  usual  commission,  and  a  usage  of  Brokers  to  do  so 
is  bad  ;  n(jr  is  the  exchange  of  bought  and  sold  notes  be- 
tween Broker  and  his  Client,  nor  the  giving  of  his  note  to 
his  Broker  in  ])ayment  for  the  stock,  in  ignorance  of  the 
Broker's  conduct,  a  ratification  of  iiis  acts.^ 

"When  a  person  gives  an  order  to  a  Stock-broker  "  to  buy 
stocks  on  mai'gin,"  Jie  euiploysthi'  Broker  to  act  for  iiiiu  and 
in  his  interest;  accordingly  the  Brok(M'  has  no  i-iglit  to  |)ut 
himself  in  a  position  antag(jnistic  to  the  interests  of  his  em- 
ployer;  he  cannot  make  himself  both  buyer  and  sculler,  ami 
any  custom  to  this  ofTect,  uidinown  to  the  employer,  is 
against  public  j)olicy  and  illegal.'' 

'Day  VH.  Holmiis,  103  -Mii-ss.  Detnoritt,  100  ul.  110;  TixKl  v«. 
300.  lii.sli<»p,  \M\  .MiusH.  ;j.S(]. 

'To   name   efTect,    I'ickeriiin   vs.        '  Coininoiiw.  v«.  Cooper,  ITi  .Via. 


376  Stock-brokers  and  Stock  Exclmuges. 

And  ill  the  case  of  Marye  vs.  Strouse  the  same  rule 
Avas  laid  down  by  the  Circuit  Court  of  the  United  States 
in  Nevada.'  There  mining-stock  Brokers  were  ordered  by 
their  Client  to  purchase  500  shares  of  a  certain  mining  stock 
at  the  San  Francisco  Mining-stock  Board.  They  purchased 
125  shares  at  the  latter  place  ;  and  at  the  same  time  F.,  one 
of  the  members  of  the  firm  of  Brokei's,  turned  over  to  his 
firm  375  shares  for  the  purpose  of  filling  the  Client's  order. 
The  Client  never  received  the  stock  into  his  possession, 
never  assented  to  this  mode  of  filling  his  oi-der,  and  had  no 
knowledge  of  it  until  the  time  of  bringing  a  suit  against  him 
to  recover  the  amount  thereof. 

The  court  held  that  he  was  not  chargeable  with  the 
amount  of  the  375  shares.  The  court  said:  "It  is  not 
claimed  that  there  was  any  fraud  in  fact  here,  but  evidence 
establishing  the  transfer  of  the  stock  to  have  been  bona  fide 
and  for  a  fair  price  is  unavailing.  The  inquiry  does  not 
reach  the  question  whether  there  was  or  was  not  fraud  in 
fact."  The  court  cited  among  other  cases  the  decision  of 
the  Supreme  Court  of  the  United  States  in  Michoud  vs. 

Law  Rev.  360;  s.  c.  15  Mass.  Law       Although  an  agent  employed  to 

Rep.  Xo.  24,  Ma}^4,  1S81.     And  the  sell  stock  is  guilty  of  bad  faith  in 

burden  of  proof  lies  on  the  agent  to  acting  both  for  buyer  and  seller,  and 

show  that  he  has  made  a  full  dis-  if  the  transaction  were  completed 

closure   to   his    principal;   but   his  without  his  principal's  knowledge, 

simple,  uncorroborated  evidence  to  would  forfeit  his  commissions,  yet 

that  effect  will  not  avail  where  it  is  if   before  fulfilment,  the   principal, 

contradicted      by      his      principal  with  knowledge  of  the  real  state  of 

(Dunne  vs.  English,  L.  R.  18  Eq.  facts,  docs  not  repudiate  the  sale, 

524).     A  Broker  does  not  meet  the  but  closes  with  the  purchaser,  he 

burden  of  proof  which  is  upon  him  cannot  decline  to  pay  the  agent's 

to  show  that  he  has  executed  his  commission.     Hafner    vs.    Herron, 

Client'sorderstopurchase,  by  show-  46  N.  E.  Rep.  (111.)  211. 
ing  that  he  has  transferred  his  own       ^  5  Fed.  Rep.  483. 
stocks  to  the  Client.     Lonergan  vs. 
Peck,  136  Mass.  361. 


Sale  or  Pnrcliase.  377 

Girod,^  and  further  decided  that  the  mere  fact  that  there 
was  an  account  stated  between  the  parties  subsequent  to 
the  transaction  did  not  alter  the  rule,  in  the  absence  of 
knowledge  on  the  part  of  the  Client.  Finally,  where  a 
Client  has  dealt  with  his  Broker  several  times  as  a  princi- 
pal in  stock  transactions,  it  does  not  annul  his  character  as 
Bnjki-r,  or  deprive  the  Client  of  the  protection  Avhich  the 
law  extends  to  him  by  reason  of  the  relation  which  exists 
between  him  as  princi})al  and  the  Broker  as  such.^ 

The  question  as  to  wliat  evidence  is  sufficient  to  warrant 
the  sulmiission  to  tlie  jur}'  of  an  instruction  that  if  a  pledgee 
became,  through  a  third  person,  a  purchaser  at  his  owm  sale 
there  was  no  sale  sufficient  to  bind  the  Client,  came  up  in  a 
recent  case.^  It  was  there  held  that  when  the  Brokers  fur- 
nished the  ])urchase  money,  and  that  one  of  them  was  alleged 
to  have  stated  that  they  still  carried  the  stock  for  the  Client 
on  their  books,  the  instruction  should  have  been  submitted 
to  the  jury,  although  an  employee  of  the  Brokers  testified 
that  the  ])urchase  was  made  for  the  wife  of  an  outside 
Broker  Avho  had  deskroom  in  plaintilf  Broker's  office,  and 
was  so  entered  on  their  books,  when  neither  the  outside 
Broker,  nor  his  wife,  was  called  as  a  witness  to  show  that 
she  was  the  purchaser. 

If  there  is  any  piincij)le  of  law  that  is  well  settled,  it 
seems  to  be  the  one  which  we  are  considering,  and  we  do 
not  deem  it  within  the  ])urpose  of  this  work  to  refer  to 
any  cases  uixjii  the  subject  othei'  than  those  in  whi(-h  Stock 
and  Produce  Brokej's  have  been  involved;  ahhoiiLrh  the 
priiicijile  is   fi-amed  so coiniirejiensively  as  to  einltraci'  everv 

'  4  How.  (U.  S.)  5^).'}.  '  ('aiiiinaim    vs.    Iluntin^n,  85 

'  BraKK  vh.  Meyer,   1    McMl.   (('.    X.  V.  S.    l.U. 
C.)  408,  117. 


378  Stock-brokers  and  Stock  E\clianges. 

relation  in  wliicli  the  sli^^htcst  element  of  trust  or  confi- 
dence exists.' 

The  solicitude  with  which  the  law  of  England  has  watched 
over  the  rights  of  Clients  to  pi-otect  them  from  any  mis- 
placed confidence  or  frauds  on  the  part  of  Brokers  is  vei'y 
apparent  from  a  perusal  of  the  acts  passed  in  the  reigns  of 
AVilliam  III.-  and  Queen  Anne,^  and  the  subsequent  acts 
amendatory  of  the  latter  act,  passed  in  the  reigns  of  Geoi"ge 
III.,  and  Victoria,'  as  also  of  the  acts  referred  to  in  chap- 
ter I.  pp.  2— i. 

By  the  first  of  these  acts  (8  and  9  William  III.),  Brokers 
were  compelled  to  become  licensed,  and  the  jurisdiction 
over  them  -was  placed  in  tlie  hands  of  the  court  of  the 
Mayor  and  Aldermen  of  London,  and  they  were  required 
to  enter  into  a  bond  and  take  an  oath  of  office.  The  act 
also  prohibited  the  Broker  from  dealing  on  his  own  ac- 
count. By  the  act  passed  in  the  reign  of  Queen  Anne,  all 
persons  were  to  be  admitted  as  Brokers  in  the  city  of  Lon- 
don, under  regulations  to  be  made  by  the  mayor  and  alder- 
men. Regulations  in  pursuance  of  this  act  were  made  by 
the  mayor  and  aldermen  and  a  form  of  bond  and  oath 
prescribed.      The    form   of    this    bond  and    oath  is  fully 

'  Xor  can  a  Broker  who  is  directed  thoin  is  that  by  the  committee  of 

to  purchase  bonds  sell  them  to  his  the  Stock  Exchange.     The  acts  of 

Client  at  a  higher  price.     Levy  vs.  William  and  Anne  have  been  also 

Loeb,  85  X.  Y.  365,  aff'd  on  new  repealed  by  the  Stat.  L.  Rev.  Acts 

trial,  89  X.  Y.  386.  1867  and  1887.     But  the  repeal  of 

^  8  &  9  Wm.  III.  ch.  32.  these  statutes  did  not,  however,  m 

^  6  Anne,  ch.  16.  any  way  weaken  or  modify  the  prin- 

*  57  Geo.  III.  ch.  60;  and  33  &  34  ciple  mentioned  in  the  text  as  to  the 

Vict.  ch.  607.     But  bj^  a  statute  of  illegality  of  a  Broker  acting  in  the 

1884  (47  Vict.  ch.  3)  the  jurisdiction  dual  capacity  of  principal  and  agent 

of  the  city  over  Stock-brokers  and  at  the  same  time,  e.xcept  in  so  far  as 

jobbers  was  terminated,  and  at  pres-  it  has  been  relaxed  in  recent  years. 

ent  the  only  control  exercised  over  See  p.  380. 


Sale  or  Purchase.  379 

given  in  the  case  of  Green  vs.  Weaver'  and  from  a  perusal 
of  the  bond  it  appears  that  one  of  its  conditions  is  similar 
to  the  provision  contained  in  the  act  of  "William  III.,  i,  e. 
that  a  Broker  shall  not  deal  on  his  own  account. 

But  although  by  the  })rovisions  of  those  acts,  and  of  the 
reguhitions  passed  by  the  city,  a  Broker  was  prohibited 
from  trading  on  his  own  account,  the  consequences  of  his 
so  trading  were  merely  confined  to  the  penalty  of  the  bond, 
dismissal  from  office,  and  to  his  liability  to  be  prosecuted 
criminally  for  a  violation  of  his  oath,  and  they  did  not  ex- 
tend to  create  a  disability  to  sustain  an  action  in  respect 
of  these  prohibited  dealings.  Therefore  if  he  traded  on 
his  own  account  openly  and  in  public  he  might  recover  on 
account  of  such  transactions,  but  if  he  acted  ostensibly  as 
Broker  whilst  actually  a  principal  in  the  same  dealing,  he 
was  guilty  of  a  gross  fraud,  and  could  not  recover.'* 

And  in  Proctor  vs.  Brain  ^  Best,  C.  J.,  used  the  following 
signilicant  language:  "A  man  who  is  a  sworn  Broker  can- 
not be  a  principal  (in  the  same  transactions),  and  this  is  for 
the  wisest  reasons.  ...  I  am  satisfied  that  nobody  of  men 
will  rejoice  more  in  seeing  the  regulations  enforced  than  the 
Brokers  tliemselves.  If  I  employ  a  Broker,  I  pay  him  for 
his  assistance,  and  I  suppose  that  I  have  the  benefit  of  his 
judgment;  1  suppose  that  he  is  acting  honestly;  but  what 
security  have  I  if  a  man  is  to  shift  his  character  at  pleasure 
from  that  of  l>roker  U)  principal?''* 

'  1  Sirn.  401,  124;  a.  c.  «  L.  J.  »  2  Moo.  &  P.  284;  3  C.  «t  P.  53G. 
Ch.  1.  See  form  of  bond  und  oatli  *  See  also  remarks  of  Lord  Ellen- 
given,  poHt  p.  944.  Kcmljle  vs.  borough  in  London,  etc.,  vs.  Hnm- 
.\tkin.s,  1  Holt,  427,  I'M,  note;  don,  Holt,  l.'iH,  note;  hw;  nl.so  nwoH 
Clark  V8.  Powell,  1  N'ev.  «t  Man.  cited  under  tlie  next  HiibdiviKion 
492,  .W-l.  (/),  and  report  of  Hoyal  Stock  Ex- 

*  Ex  parte  Dvst«'r.  I  ,M.  r.  1.").').  cliaimc  ('oniniiH.sion,  July,   1878. 


380  Stock-brokers  and  Stock  £xcliaiiges. 

Of  late  years,  however,  in  England  the  courts  have  re- 
laxed something  of  the  stringency  of  the  rule  which  forbade 
a  Broker  to  deal  with  his  principal  whilst  acting  as  a 
Broker  in  any  other  capacity  than  that  of  agent.  It  seems 
that  although  a  Broker  is  on  all  occasions  bound  to  use  his 
best  endeavors  in  his  emi)loyei''s  interests,  yet,  if  in  doing 
so,  he  is  compelled  to  abandon  the  position  of  an  agent  and 
take  up  that  of  a  principal,  he  will  not  be  held  to  have 
acted  wrongfully'  and,  as  he  is,  under  the  rules  of  the 
Exchange,  personally  liable  on  contracts,  he  may,  to  mini- 
mize his  loss,  sell  and  repurchase  from  a  jobber  at  a  fair 
price  fixed  by  the  jobber,^  but  if  the  sale  and  repurchase  is 
one  and  the  same  transaction,  he  must  account  to  the  Client 
for  any  profit  made.^ 

There  seems  to  be  an  exception  to  the  principle  above 
stated,  which  Avas  made  for  the  first  time  by  the  Court  of 
Appeals  of  the  State  of  New  York  in  the  case  of  Quincey 
vs.  White.^  It  was  there  held  that  where  stocks  were 
sold  at  the  Board  of  Brokers  "  under  the  rule  "' "'  by  a  Broker 
who  had  loaned  money  on  them  to  a  fellow-Broker,  the 
proceeding  was  in  the  nature  of  a  foreclosure,  and  the 
creditor  might  himself  become  the  purchaser.  The  court 
said :  "  It  must  be  assumed  that  a  person  selling  stock 
under  the  rule  (as  it  is  called)  has  a  right  to  purchase  him- 
self. The  object  is  to  foreclose  the  claim  of  the  mortgagor 
or  pledgor,  and,  in  analogy  to  other  similar  cases,  the 
pledgee  or  mortgagee  may  become  the  purchaser."     And 

»  Petre  vs.  Sutherland,  3  T.  L.  R.       ^  Erskine  vs.  Sachs,  L.  R.  2  K.  B. 

422;  Sachs  vs.  Spielman,  5  T.  L.  R.  (1901)  594. 
487.  *  63  X.  Y.  370-376. 

2  Walter  vs.  Kins,   13  T.    L.  R.        *  Art.  XXVIII.  Constitution  N 

270;  Macoun  vs.  Erskine,  L.  R.  2  K.  Y.  Stock  Exchange. 
B.  (1901)  493. 


Sale  or  Purchase.  381 

the  rule  seems  to  be  settled,  that  a  Broker  or  pledgee  may 
become  the  purchaser  of  the  pledged  security  at  a  judicial 
sale  held  under  a  decree  to  foreclose  the  pledge.^ 

And  the  parties  may  expressly  agree  that  the  pledgees 
may  become  purchasers  at  their  own  sale.-  The  court 
said :  "  Such  a  sale  is  not  absolutely  void,  but  only  void- 
able, for  it  may  be  sanctioned  or  ratified  by  consent,  and 
this  is  shown  by  numerous  authorities,"  And  further  :  "  If 
voidable,  then  capable  of  ratification  ;  if  thus  capable,  then 
also  of  a  prior  authorization." 

'  Quincey  vs.  White,  63  X.  Y.  370-  Quaere,     whether     Brokers     not 

376;    Jones    on     Mort.    (4th    ed.)  members   of   the   Stock   Exchange 

§  1636;  Newport,  etc..   Bridge  Co.  who  borrow  money  from  Brokers, 

vs.  Douglass,  12  Bush  (Ky.),  673,  members   of   the   Exchange,    on  a 

720.  pledge  of  securities,  are  bound  by 

In  the  case  of  Lacomlje  and  others  the  rules  of  the  E.xchange  as  to  the 
vs.  Forstell's  Sons,  123  U.  S.  562  sale  of  collaterals,  even  though  the 
(1887),  the  United  States  Supreme  loan  was  elTected  on  the  floor  of  the 
Court,  without  passing  on  the  que.s-  Exchange  by  a  Broker  employed  by 
tion,  suggest  a  well  founded  doubt  the  borrowers.  Morris  vs.  Grant, 
as  to  whether  the  pledgee  of  securi-  34  Hun,  377.  In  that  case  it  was 
ties  can  cut  off  the  pledgor's  right  also  held  that  a  buyer  who  had  pur- 
by  putting  them  into  tiie  hands  of  a  chased  at  such  a  sale,  and  liad  re- 
Broker  to  be  sold  on  the  market  in  ceived  the  securities,  l)ut  declined 
the  usual  way,  and  instructing  an-  to  pay  the  purchase  money,  could 
other  Broker  to  see  (hat  they  are  be  compelletl  to  complete  tiie  pur- 
not  sacrificed,  authorizing  him  to  chase,  notwithstanding  a  deci.^ion  of 
say  that  they  would  pay  more  for  the  committee  on  securities  to  the 
them  to  the  purcha-ser  than  they  contrary,  becau.se  the  latter  had  no 
would  sell  for.  Defendants  claimed  jurisdiction  of  the  matter,  there  wa-s 
that  in  this  way  the  securities  were  no  question  jls  to  the  legal  riglits  of 
returned  to  them,  and  that  tliis  was  the  parties  to  l^e  adjudicated,  and 
done  without  fraudulent  purpose,  the  l)orrowers  Iiad  no  notice  of,  and 
but  to  secure  the  higliest  market  did  not  attend,  (ho  committee 
price  for  tlie  bonds  at  the  sale.  meeting.     .Morris     vs.     (Irant,     31 

Tlje  court  .say  that  althr)Ugli  (h(;  Ilun,  377. 

f|ues(ion   of   ititentional   fraud   was  'Chouteau  vs.  .Mien,  70  Mi>.  21H), 

re[M."lle<l,    "the    transaction    is    one  335. 
which  it  might  be  diflicult  to  sustain 
in  a  cotirt  of  equity." 


382  Stock-brokers  and  Stock   Kxclianjjcs. 

Courts  of  cqiiit}'  do  not,  however,  go  so  fur  as  to  prevent 
an  agent  dealing  with  his  principal  in  all  cases.  They  only  re- 
quire that  he  shall  deal  with  him  at  "  arm's  length,"  and  after 
a  full  disclosure  of  all  he  knows  with  respect  to  the  property.' 

And  where  the  Broker  buys  or  sells  his  own  stock  on  his 
Client's  account,  and  therein-  makes  a  profit,  his  principal 
may  either  repudiate  the  transaction  altogether,  or  he  may 
adopt  it,  and  claim  for  himself  the  benefit  made  by  liis  agent.^ 

If  a  Broker  purchases  bonds  from  a  Broker  apparent!}'  for 
an  undisclosed  principal,  but  in  reality  for  himself,  and  shields 
himself  from  all  liahiliry  as  agent,  he  is  estopped  from 
suing  for  a  breach  of  tlie  contract  either  as  principal  or 
agent.^ 

(/.)   Effect  of  Sale  or  Purchase  hy  Broker. 

The  effect  of  a  purchase  by  a  Broker  or  pledgee  of  the 
stocks  of  the  Client  or  pledgor,  as  we  have  seen,  is  to  render 

'  Evans  on  Ag.  (2d  ed.)  324;  Tre-  95  N.  Y.  .391,  402,  confirming  Bryan 

velyan  vs.    Charles,   9   Beav.   140;  vs.  Baldwin,  52  N.  Y.  232. 

Dunne  vs.  English,  L.  R.   18  Eq.  And  where  a  Broker  mixes  his 

524;  Robinson  vs.  Mollett,  L.  R.  7  own  with  his  principal's  bonds  in 

H.  L.  815,  816.  selling,  and  refuses  to  disclose  the 

'  Evans    on    Ag.    (2d    ed.)    324;  time  of  the  sale,  and  the  amount 

Kimbar  vs.  Barber,  L.  R.  8  Ch.  App.  realized,  the  jury  are  at  liberty  to 

56.     See    also    notes    to    Fox    vs.  find  that  all  of  the  bonds  sold  are 

Macreth,  1  L.  C.  Eq.  (6th  ed.)  141.  the     principal's.       Bate     vs.     Mc- 

A  Broker  is  not  precluded  by  the  Dowell,  49  Super.  Ct.  Rep.  (17  J.  & 

form  of  his  notices  of  purchase  or  S.)  106. 

sale,  from  showing  that  the  transac-  The    rule    that    all    advantages 

tions  were  made  with  third  parties,  gained  by  an  agent  in  unauthorized 

Porter  vs.  Wormser,  94  N.  Y.  431,  dealings   or  speculations   with   his 

447.     The  sale  by  a  pledgee  to  him-  principal's    property,  enure  to  the 

self  is  not  absolutely  void,  but  void-  principal,  is  declared  and  the  cases 

able   only   at   the   election    of   the  cited  and  examined  in    Keiran  vs. 

pledgor.     He  may  ratify  the  sale,  Hoyt,  33  Hun,  145,  s.  c.  more  fully, 

and  if  he  elects  to  do  so,  then  the  X.  Y.  Daily  Reg.  Oct.  4,  1884. 

sale   becomes   perfectly   valid    and  ^  Paine  vs.  Loeb,    96  Fed.   Rep. 

eflfectual.     Roach    vs.    Duckworth,  164. 


Effect  of  Sale  or  Purchase.  383 

the  transaction  void,  and  the  cases  hold  that  such  a  pur- 
chase does  not  change  the  creditor's  rehition  to  his  debtor, 
but  that  the  securities  are  still  held  by  the  creditor  under 
the  original  titles  as  securit\'  for  the  original  debt.  The 
transaction  is  treated  precisely  as  if  no  sale  had  been  made ; 
and  the  debtor,  in  order  to  obtain  another  sale  of  the  secu- 
rities, or  to  redeem  them,  is  not  required  to  prove  that  the 
Broker  or  pledgee  made  a  fraudulent  sale  or  one  disadvan- 
tageous to  himself,  but  only  that  he  became  the  purchaser. 
The  Broker  or  pledgee  in  selling  the  securities  is  in  the  posi- 
tion of  trustee  for  the  Client  or  pledgor,  and  the  law  will 
not  allow  of  the  temptation  to  fraud  or  the  possibility  of  the 
same  through  the  trustee  becoming  purchaser  at  his  own 
sale.  But  the  pledgor  has  the  option  to  treat  the  sale 
as  valid,  and  to  accept  the  benefits  thereof.^ 

In  Brookman  vs.  Rothschild,^  where  the  20,000  rentes  were 
purchased  by  the  Brokers  themselves,  the  decree  of  the  court 
was  that  they  should  deliver  the  same  to  the  Client,  to- 
gether with  all  of  the  dividends  thereon,  upon  being  repaid 

'Brookman  vs.  Rothschild,  3  R.  Co.,  84  X.  Y.  201;  Hope  vs. 
Sim.  221;  afT'd  H.  L.,  o  Bli^;h  (II.  s.),  Lawrence,!  iluii,  .'{17;  Diuicu  vs. 
165;  Pigot  vs.  Culilcy,  1.5  C.  B.  Waitzfeldpr,  Ht  id.  :j.J7;  Hamilton 
Cn.  8.)  702;  Stokes  vs.  Frazier,  72  111.  vs.  Srhaark,  10  .\.  V.  \V.  1).  ■I2;i; 
428;  Cliicatio  .\rtesian-well  Co.  vs.  .Mi(i<llf>,s.sf.\  Bank  vs.  Minot,  4.5 
Corey,  00  id.  7'i;  Bank  vs.  I)ubu<|uc  .Nhuvs.  :V2'r,  .\in.s\vorlh  vs.  Boweii,  9 
AParificR.  R.,8lowa,  277;Hainil-  Wis.  348;  Ileslonvill.!  R.  Co.  vs. 
ton  vs.  State  Bank,  22  id.  30(5;  Md.  Shields,  3  Brews.  (Pa.)  2.')7.  Seo 
Fire  Iils.  Co.  vs.  Dalrymple,  25  NSd.  also  First  National  Bank  vs.  Hall, 
242;  B.altiniore  .Marine  Ins.  Co.  v.*.  22.\pp.  Div.  35(»;  Cdidden  vs.  Bank, 
Dalryrnplf,  id.  20(»;  Bry.son  vs.  Ray-  13  L.  R.  .\.  737.  ("misult  also  the 
ner,  id.  421;  Star  Fire  Ins.  Co.  vs.  fedlowinp;  notes  in  L.  R.  \.,  "Pur- 
Palmer,  9  .1,  it  S.  (S.  V.)  207;  Rich-  chiisc  hy  pledcee."  43  L.  R  A  7.55; 
ard.son  vs.  Maim,  .30  I,a  .\iiii.  10(»0;  "Who  m.iy  piir('luu<e,"  53  I.  H  A. 
Wriifht  vs.  Ross,  3()  Cal  11  I;  Bryan  .SOI. 
VH  Baldwin,  7  L.-iiis,  174,  uHW  .52  .N'  '  Supra. 
Y.  232;  Dunroml>  vh.  N.  Y.  &  N.  U. 


384  Stock-brokers  and  Stock  Exchanges. 

the  sum  Avitli  interest  whicli  the  Client  had  originally  re- 
ceived for  them  ;  or  that  the  Client  should  receive  an  amount 
equal  to  the  present  value  of  the  rentes. 

And  the  other  cases  cited  above  hold  that  the  Client,  if  the 
Broker  has  sold  the  stocks,  may  elect  to  affirm  the  sale  and 
recover  the  proceeds ;  or  that  he  may  treat  the  illegal  dis- 
position as  a  conversion  and  recover  damages  for  the  same.' 
And  where  a  Broker  sold  shares  in  a  Water  Company  to 
his  Client,  through  third  parties,  the  com't  directed  that  the 
defendant  Broker  should  take  back  the  shares  with  all  the 
dividends  which  had  been  paid  upon  them,  and  that  he 
should  pay  to  the  plaintiff,  his  Client,  the  purchase-money, 
with  interest  at  the  rate  of  five  per  cent,  and  the  costs  of 
the  suit.^  So,  Avhere  a  Broker  purchases  shares  from  a  third 
party  with  the  view  of  selling  them  himself  to  his  Client,  in 
the  execution  of  an  order  to  purchase,  and  does  sell  tlie  same 
to  his  principal  at  a  price  higher  than  that  at  w^hich  he  him- 
self purchased,  the  Client  may  recover  the  difference  be- 
tween the  price  at  which  the  Broker  bought  and  that  at 
which  he  sold  the  shares;  and  this,  although  the  Client  has 
parted  with  a  portion  of  the  shares,  so  that  he  might  not  be 
in  a  position  to  rescind  the  transaction,^ 

'  See,  in  addition  to  the  authori-  performinf:;  their  contract  of  agency 

ties  just  cited,  Taussig  vs.  Hart,  49  to   purchase  bonds,  the  defendants 

N.  Y.  301;  id.  58  X.  Y.  425;  Picker-  purchased  the  bonds  in  their  own 

ing  vs.   Demeritt,    100  Mass.  416;  name    at    prices    stated    and    then 

Day  vs.  Holmes,  103  id.  306.     But  charged  them  to  plaintiffs  at  higher 

the   Client   cannot   follow   both   of  prices,  and  reported  the  purchases 

these   courses.     Mayo   vs.    Knowl-  as  made  for  them  at  those  enhanced 

ton,  16  Daly,  245.  prices.     Relying    upon    this    false 

^  Gillett  vs.  Peppercorne,  3  Beav.  statement  and  in  consideration  of 

78.  an  agreement  to   carry   the  bonds 

'  Kimber  vs.  Barber,  L.  R.  8  Ch.  for  a  certain  time  on  part  payment 

App.  56.     In  Levy  vs.  Loeb,  89  N.  of  the  purchase  price,  plaintiffs  paid 

Y.  386,  it  appeared  that  instead  of  the  sum  called  for.     Held  that  upon 


Close  of  Trausactiou.  385 

One  B.,  a  Broker,  knowing  that  one  K.  was  desirous  of  ob- 
taining shares  in  a  certain  company,  called  upon  K.  and  told 
him  that  he  knew  where  the  shares  could  be  purchased  at 
£3  ])er  share,  and  was  authorized  to  make  the  purchase  at 
that  price.  B.  then  went  to  a  person  who  had  the  shares 
for  sale  and  bought  them  for  £2  per  share,  and  made  the 
sale  and  transfer  of  the  shares  to  K.  through  a  third  per- 
son. K.  subsequently  discovering  that  B.  was,  in  fact, 
the  owner  of  the  shares,  brought  an  action  against  B.,  in 
which  he  prayed  for  alternative  relief,  either  that  B.  inight 
be  decreed  to  pay  K.  the  difference  between  the  pi'ices  paid, 
or  otherwise  that  the  sale  of  the  shares  might  be  set  aside, 
and  the  purchase-money  repaid  upon  a  retransfer  of  the 
shares.  Previous  to  bringing  the  suit,  K.  had  transferred 
part  of  the  shares;  and  the  Master  of  the  Rolls,  on  this 
irround,  held  tliat  the  transaction  could  not  be  set  aside. 
And  he  refused  to  give  the  plaintiff  the  difference  between 
the  prices  [>aid,  for  the  reason  that  it  would  be  making  a  new 
contract  between  the  jiarties.  On  appeal,  the  decree  of  the 
Master  of  the  Rolls  was  reversed,  and  the. plaintiff,  K.,  was 
allowed  to  recover  the  difference  in  the  prices  paid.  But 
the  court  did  n(jt  undertake  to  decide  whether  the  transaction 
could  be  set  aside,  X.  having  })arted  with  a  portion  of  the 
shares.' 

IX.   When    IJrokf'r  can  Close  Transaction. 

In  the  absence  of  ex[)r(ss  agreement,  iht;  ilroker  may,  at 
liis  option,  upon  reasonable  notice,  recjuire  the  Client  to  take 

the  discovery  of  llie  facts,  pl:iiiililT.s    reported,   iind    couhl    recover   buck 
were  authorized  uiid  jii.stified  in  re-    the  kuim  |)aid. 

pudiuting  the  fictiti<mH  trurisuclion        '  Kimher  vh.  M;irl>er,  L.  H.  s  ("h. 

A  pp.  •Vi. 

26 


386  Stock-brokers  .and  Stock  Exchanj^es. 

the  stocks  which  he  may  be  carrying  for  hiin,  and  thus  close 
the  transaction.*  As  tlic  Client  may  at  any  time  require  the 
delivery  of  the  stocks  to  him  or  the  transaction  closed  upon 
paying  the  amount  advanced  for  their  purchase,  with  com- 
missions and  interest,  so  the  Broker,  in  the  absence  of  agree- 
ment, has  the  reciprocal  right  to  require  the  Client  at  any 
time  to  "take  up"  the  stocks  or  close  the  transaction,  and 
to  repay  him  the  amount  due  thereon.  Although  the  Client's 
margin  may  not  be  exhausted,  the  Broker  is  not  bound  to 
continue  the  transaction  for  an  indefinite  period.  He  earns 
his  commission  by  making  the  transaction,  and  in  the  absence 
of  agreement  it  would  seem  but  reasonable  to  assume  that 
he  should  be  able  to  discontinue  the  relation  after  a  reason- 
ble  time  at  least.  But  there  is  no  express  adjudication  upon 
this  point,  and  much  can  be  said  on  both  sides  of  the  ques- 
tion.^ 

So  there  is  another  instance  where  the  Broker  seems  to  be 
entitled  to  sell  the  Client's  stocks,  viz.,  where  the  latter  be- 
comes a  bankrupt  ;^  and  it  has  been  decided^  that  where  a 
Broker  holds  stock  for  a  Client  on  a  margin,  and  the  latter 
becomes  a  bankrupt,  it  is  the  duty  of  the  Broker  to  take  no- 
tice of  this  fact ;  and  that  where  the  Broker  continued  to 
hold  the  stocks  after  such  bankruptcy  for  an  unreasonable 
time,  and  then  sold  them  witliout  any  application  or  con- 
sent of  the  assignee  or  bankruptcy  court,  and  without  no- 

'  Stenton  vs.  Jerome,  .54  X.  Y.  ^  Id. 
480,  482;  White  vs.  Smith,  id.  522;  ^  The  authority  of  an  agent  is  de- 
Sterling  vs.  Jaudon,  48  Barb.   (N.  termined   by   notice   of   the   bank- 
Y.)   459;  Memin   vs.   Hamilton,   6  ruptcy  of  his  principal.     Markwick 
Buer  (N.  Y.),  244;  Esser  vs.  Linder-  vs.  Hardington,  15  Ch.  D.  339. 
man,  71  Pa.  St.  76.     As  to  when  *  In  re  Daniels,  13  Nat'l  Bankr. 
Broker  may  close  transaction  on  the  Reg.  46;  s.  c.  1  N.  Y.  W.  D.  271. 
death  of  his  Client,  .see  Lacey  vs. 
Hill,  post,  387. 


Close  of  Transaction.  387 

tice  to  any  one,  the  bankrupt's  estate  was  not  properly 
charo;eable  with  the  loss. 

So  also  a  Stock- broker  is  justified  in  immediately  closing 
the  account  on  the  death  of  his  Client.'  The  authority 
given  by  the  deceased  Client  becomes  determined  at  his 
death.2  But  the  Broker  cannot,  on  the  })lea  that  he  had  a 
continuing  authority  from  the  deceased  to  carry  over  from 
settling  day  to  settling  day,  carry  over  the  account  for  a 
considerable  period  after  notice  of  his  Client's  death.^  And 
if  he  has  a  continuation  account  with  a  Client,  and  on  notice 
of  the  latter's  death,  does  not  close  the  account  immedi- 
ately, but  makes  a  further  continuation,  and  ultimately  sells 
at  a  loss,  he  cannot  recover  the  amount  of  the  loss  from  the 
Client's  estate.^ 

But  it  has  been  held  in  the  State  of  New  York  that  when 
a  Broker  acts  in  ffood  faitli,  lie  niav  continue  the  account 
until  the  appointment  of  a  legal  representative,  as,  the 
agency  being  coupled  with  an  interest,  the  case  presents  an 
exception  to  the  i-ule  that  the  death  of  the  principal  termi- 
nated the  agent's  authorit3\''  But  circumstances  might  jus- 
tify him  in  closing  the  account  immediately.^  And  in  case 
of  a  stock  oj)tion  where  the  one  liable  to  deliver  the  stock 
dies  before  the  option  expires,  the  holder  of  the  option 
must  make  a  demand  of  the  stock  from  the  legal  representa- 
tive when  ap])oint<'d.  A  dcnuind  in.idt'  at  llu'  bank  where 
the  sU>ck  was  ma<lr  jjayable,  immediately  after  th<-  dt-ath, 
is  insufficient.' 

»  Lacey  vh    Mill,  [.    I{   S  Ch.  App.  '  Hww  vh.  Ran,  0")  .\  .  V.  iC.'J. 

921.  'Id.;    Hoo    Dcincrv    vs      Hiirten- 

'  Phillips  VH.  Joruw,  1  T  L   U    101.  hliaw's  Rst  .  \)\  N.  W    I{<|.   r>l7. 

*  Id.  '  PriiKO   V.4.    ItoltiiiHoiiH   Admn*., 

Mi.    ro  Ovorwf^,    I,     H     i\<MH\)    1  l>   I'.<1,   \iv\>.  CM. 
Ch    IJ.  209. 


388  Stock-brokers  and  Stocli  Exchanges. 

If  the  transaction  be  a  "  long  one" — viz.,  a  purchase  of 
stocl^s  for  tlie  Client — the  bettei'  practice  would  be  for  the 
Broker  to  make  up  a  statement  of  the  account  and  tender 
the  securities  to  the  Client  with  a  blank  power  of  attoi-ney 
to  transfer,  and  offer  to  deliver  the  same  upon  payment  of 
the  amount  due.' 

If,  on  the  other  hand,  the  transaction  consists  of  a  short 
sale,  the  Broker  should  give  tlic  Client  a  notice,  informing 
him  that  he  desired  the  transacti(^n  closed  either  by  a  pur- 
chase of  the  stock  or  a  transfer  of  the  operation  to  some 
other  person  oi-  office,  as  has  been  indicated  above  under  the 
head  of  "  short  sale." 

When  a  Stock-broker  fills  an  order  for  the  purchase  of 
stock,  and  his  ])rincipal  makes  default,  and  he  thereupon  re- 
sells the  stock  at  a  loss,  it  is  necessary  for  him,  in  order  that 
he  may  recover  the  amount  of  such  loss  from  his  principal, 
to  show  that  thestock  was  actually  purchased  by  himself  or 
by  an  agent  under  his  direction,  at  its  fair  market  price  on 
the  day  of  purchase,  and  that  lie  actually  paid  the  })urchase- 
money  therefor  ;  that  he  notified  liis  principal  of  the  pur- 
chase, and  requested  him  to  receive  the  stock  and  pay  the 
price  paid  for  it  with  reasonable  commissions  ;  that  at  the 
time  of  this  notice  he  was  in  condition  to  deliver  the  stock, 
by  having  it  or  other  ])roper  mdicia  of  title  actually  in  hand 
or  in  the  hands  of  his  agent  ;  that  on  the  failure  of  the  prin- 
cipal to  receive  the  stock  he,  after  reasonable  time  and  no- 
tice to  that  effect  to  the  principal,  directed  it  to  be  sold ; 
and  that  it  was  sold  by  his  agent  either  at  public  sale  in 
market  overt,  or  at  a  sale  publicly  and  faii-ly  made  at  the 

*  Merwin  vs.   Hamilton,   6  Duer    32  Md.  169;  Genin  vs.  Isaacson,  6 
(X.  Y.),  244;  Wynkoop  vs.  Seal,  64    X.  Y.  Leg.  Ohs.  213. 
Pa.  St.  361 ;  Rosenstock  vs.  Tormey, 


Close  of  Transact iou.  389 

Stock  Exchange,  or  a  Stock  Board  or  a  Boanl  of  Brokers, 
where  such  stocks  are  usually  sold  at  a  fair  market  value 
on  the  day  of  sale.' 

So  it  has  been  held' that  where  Brokers  purchased  in 
their  own  names,  and  witliout  disclosing  the  name  of  the 
Client,  certain  stocks  for  the  latter,  before  thev  could  main- 
tain an  action  against  the  latter  for  a  depreciation  in  the 
price  of  the  stocks,  they  were  bound  to  tender  the  stocks 
to  the  Client;  and  that  where  it  ap))eared  that  this  was 
not  done,  and  that  the  Bi-okers  sold  the  stock  without  any 
notice  of  the  sale,  they  could  not  recover  from  their  prin- 
cipal.' 

But  where  the  Brokers  have  not  sold  the  stocks  purchased 
for  their  Client,  in  an  action  against  him  to  recover  the  ad- 
vances made  by  the  Brokers  and  their  commissions  on  such 
purchase,  it  i.s  not  necessary  for  them  to  produce  the  certifi- 
cates of  stock  on  the  trial  or  account  for  their  non-pro- 
duction, where  they  give  testimony  that  they  bought  and 
have  the  same  in  their  possession.  It  is  not  until  the  Client 
has  paid  or  tendered  the  sum  laid  out  that  he  can  demand 
its  delivery.*  And  where  plaintiffs'  Brokers  and  copartners 
broujjht  an  action  to  recover  an  amount  claimed  to  be  due 

'  RoseiLStock  vs.  Tormcy,  32  Md.  12  Barb.  2().'j.     But  see  c-iuscs  cittKl 

169.  ill  next  note. 

*  Merwiii   vs.    Hamilton,   0   Duer        'Id.     .\nd    whorp    ujjon    ii    oon- 

(N.  Y.),  214.  tnict   to   dolivpr   certain   .^ihares  of 

'Upon    a    contract    to    deliver  stock     "at    8ener'.s    option,     si.xty 

8tock.s  to  another  for  cash  on  de-  days,"    the    purchaser    makes    his 

liven*',  the  act,s  of  deliver^'  and  pay-  demand  for  the  stock  at  tlje  proper 

ment  are  simultaneous  and  neither  time  and  in  tlie  proper  form,  \>*  then 

can  maintain  an  action  auainst  the  ready  to  pay  the  price,  and  is  rt*- 

other  with(tut  showin^^  on  his  part  fu.-^eil   the  delivery   mi   tlie   ground 

an    actual    pcrfonn.incc   or   a    letral  that  the  s<'Iler  wiw  not  al>le  to  make 

offer  to  perform;  Kelley  vs.  I'plon,  it,  it  Is  not  nece-wnry  to  the  former's 

5  Duer,  3.'<f',;  r'.itiln  vs  Tompkins,  right  of  action  for  the  hrcjich  that 


390  Stot'k-brokers  and  Stock  Kxchaiiges. 

upon  an  alleged  agreement  as  to  the  sale  and  purchase  of 
stocks  on  defendants'  joint  account,  it  appeared  tliat  plaintiffs 
purchased  for  defendant  T.  56,<»r>U  shares  of  a  certain  stock. 
The  referee,  in  stating  the  account  between  the  parties, 
credited  plaintiffs  with  24,200  shares  sold  by  them,  and  ex- 
cluded from  such  account  32,450  shares,  althouf^h  ho  found 
that  plaintiffs  had  bought  and  paid  for  the  latter  on  account 
of  the  defendant  T.  As  to  them  he  also  found  that  on  April 
20,  1874,  they  were  not  in  the  possession  of  plaintiffs,  but 
prior  to  that  time  had  been  })ledged  by  them  for  a  loan  of 
money  for  their  use,  and  had  never  been  tendered  to  T.  and 
the  amount  due  thereon  demanded.  He  found,  as  conclu- 
sions of  law,  that  plaintiffs  could  not  recover  for  the  pur- 
chase of  said  32,450  shares,  unless  they  showed  performance 
of  a  contract  on  their  part.  He  also  found  that  the  pledge 
of  the  stocks  and  suffering  them  to  be  sold  by  the  pledgee 
was  not  such  a  performance,  and  that  defendants  were  not 
bound  to  redeem  the  stock  so  pledged,  and  plaintiffs  could 
not  recover  for  the  purchase  of  such  stock.  Plaintiffs 
claimed  that  their  pledge  of  the  stock  was  not  a  failure  to 
perform  a  condition  precedent,  but  a  breach  of  a  condition 
subsequent,  which  is  to  be  compensated  in  this  action  by  a 
recoupment  or  counterclaim  of  the  damages. 

Held,  that  the  finding  of  the  referee  was  erroneous ;  that 
the  purchase  of  the  stock  was  u})on  T.'s  account,  and  was  a 

he  should  have  made  an  actual  offer  Ikuikruptcy  of  the  Broker  dispenses 

or  tender  of  the  money  (Wheeler  vs.  with  the  necessity  of  demand  and 

Garcia,  40  N.  Y.  584).     Munn  vs.  tender.     In  re  Swifte,  172  Fed.  Rep. 

Barnum,  24  Barb.  283.     A  tender  315,     321.     See     also     Mayo     vs. 

may  be  made  by  Brokers  acting  for  Knowlton,    134   N.  Y.  250.     As  to 

principals  in  another  state  althoujrh  when  tender  before  action  is  unnec- 

the  former  were  the  owners  of  the  essary,   see   Map:uire   vs.    Halstead, 

stock  at  the  time  of  tender.     Clews  4.5   .\'.     Y.     Supp.    783.     See  also 

vs.  Jamieson,   182  U.S.  461,  496.  Speyer  vs.  Colgate,  67  Barb.   192. 


To  Act  by  Substitute.  391 

proper  charge  against  him  ;  and  the  stile  of  the  stock  was  a 
faiUire  to  perform  a  subsequent  duty,  and  no  condition  })re- 
cedent  was  broken  which  prevented  plaintiffs  from  charg- 
ing T.  for  the  jmrchase  of  the  stock.' 

If  after  a  Broker  has  closed  out  a  transaction  owins:  to 
the  failure  of  his  Client  to  furnish  sufficient  margin,  the 
rendering  of  an  account  to  the  customer  may,  under  circum- 
stances, and  when  not  objected  to  by  the  latter,  constitute 
an  account  stated.  Thus  if  several  accounts  have  been  ren- 
dered each  showing  a  balance  brought  forward  from  the 
previous  account,  and  suit  is  commenced  three  weeks  after 
the  rendition  of  the  final  account,  all  of  the  accounts  having 
been  retained  by  the  Client  Avithout  objection,  the  Client 
will  be  deemed  to  have  assented  to  their  accuracy,^  and  such 
facts  when  alleged  in  the  complaint  will  entitle  the  plain- 
tiff to  recover  for  moneys  advanced,  and  for  commissions 
and  expenses,  and  also  upon  an  account  stated.^ 

X.  When  Broker  can  Act  by  Substitute. 

The  general  rule  of  law  is,  that  a  Broker,  like  an  attorney, 
is  selected  as  a  specialist  on  account  of  his  pi-esumed  skill 
and  discretion,  and  of  the  conlidence  consequently  best(jwed 
on  him  by  the  principal.  lie  cannot,  therefore,  depute  his 
duties,  so  far  as  they  are  discretionary,  to  anotlier,  excoj)t 
in  cases  of  necessity,  or  In  cu^es  in  whir/i  such  (1ej)ut<ition 
is  nuHlained  hy  usage^  of  which  it  may  he  hnplicd  that  the 

'Capron  vs.  Thompson,  13  N.  Y.  McKay,    "^h    N.    V.   Supp     nf):   SO 

Weekly  Dig  199;  s.  c.  Ct.  of  App,  86  Hun,  012;  Gillctt  vh,  Whitiiiu',  II! 

N.    Y.    41.S      See    also    Caliill    vs.  N.  Y.  71;    Donald  vs.  (Juriln.T.   11 

Hirschman,  6  Xev.  WJ.  .\pp.  Div.  23M;  Coit  vs.  Gowlliart,  /i 

'  Knickcrbofkcr    vs.    Gould,    11/5  App.  Div. -Ml. 
N.  Y.  533;  Uca<li  v.s.  Kidder,  S  .\.        '  Knickerbocker    vs.    Gould,   su- 

Y.  Supp.  5S7.     See  al.so  .McKay  vs.  i)ra 


302  Stock-brokers  and  Stock   Exchaiii^os. 

principal  is  cognizant}  The  rule  being  that,  if  a  principal 
constitute  an  agent  to  do  a  business  which  obviously,  and 
from  its  very  nature,  cannot  be  done  by  the  agent  otherwise 
than  throuirli  a  substitute,  or  if  there  exist  in  relation  to  that 
business  a  known  and  established  usage  of  substitution,  in 
either  case  the  principal  would  be  held  to  have  expected 
and  have  authorized  such  substitution.'^  Applying  these 
general  principles  to  the  business  of  Wall  Street,  it  will  be 
very  easy  to  sustain  the  usage,  so  universally  prevalent 
there,  of  transacting  business  through  one  or  more  sub- 
ordinate Brokers  who  are  necessarily  employed,  either  for 
secrecy  or  despatch,  in  the  execution  of  the  Client's  busi- 
ness or  orders.  And  where  an  order  to  purchase  stocks 
is  given  by  a  Client  to  his  Broker  in  Baltimore,  and  the 
order  is  general  in  its  terms — not  directing  the  purchase 
to  be  made  in  any  ])articular  place  or  mode,  and  not 
containing  any  restrictions  as  to  price — the  Broker  has 
the  right  to  make  the  purchase  in  New  York  through 
correspondents— Brokers  or  sub-agents  residing  and  doing 
business  in  that  city.^ 

'Wharton  on  Ag.  §§709,  711;  Fuller,  4  Hun  (X.  Y.),  631;  Com- 
Mechem  on  Agency,  §§195,  197.  mercial  Bank  vs.  Norton,  1  HilUN. 
Cockran  vs.  Irlain,  2  Manic  ct  S.  301.  Y.),  501,  505;  ElweU  vs.  Chamber- 
Of  course  if  the  discretion  has  lain,  2  Bosw.  id.  230. 
ceased,  the  Broker  may  act  through  ^  Rosenstock  vs.  Tormey,  32  Md. 
a  sub-agent.  If  a  discretion  is  169;  SkifT  vs.  Stoddard,  63  Conn, 
vested  in  a  Broker  as  to  whether  a  198.  In  the  latter  case  see  the  na- 
sals should  be  made  of  stocks  or  ture  of  the  business  done  through 
not,  and  if  he  determines  upon  a  New  York  correspondents  described 
sale,  then  the  discretion  is  exer-  in  full  detail,  p.  205  et  seq. 
cised,  and  he  may  employ  a  sub-  The  sub-agent  has  no  right  of  ac- 
agent  to  make  the  actual  sale,  tion  against  the  Client,  where  the 
Sims   vs.    May,    16   St.    Rep.    780.  first  Broker  in  employing  the  sub- 

'  Moon  vs.  Guardians  of  Whitney,  agent  acts  only  as  an  independent 

Union,  3  Bing.  (N.  C.)  814;  Ledoux  contractor,  that  is,  employs  a  sub- 

vs.  Goza,  4  La.  Ann.  160;  AMiite  vs.  agent  to  execute  an  order  intrusted 


To  Act  by  Siilistitiitt'.  393 

But  it  has  beeu  held  that  when  a  Broker,  not  beinsr  in 
Loiulo!!,  employs  a  second  Broker  to  make  a  bargain  for 
him  on  the  Stock  Exchange,  there  is  no  privity  between  the 
princii)al  and  such  second  Broker;  and  therefore,  if  the 
principal  seek  to  make  the  latter  a  defendant  in  a  suit  for 
specific  performance,  the  bill  will  be  demurrable.' 

Defendants,  who  were  bankers  and  Brokei*s,  gave  to 
plaintiff  a  letter  to  their  correspondent  G.,  a  Stock-broker 
in  Philadelphia,  stating,  "This  will  introduce  to  you  J. 
Any  orders  he  may  give  you  please  execute  on  our  account 
and  advise  us.''  G.  took  his  orders  from  plaintiff  in  the 
purchase  and  sale  of  stocks,  but  reported  to  defendants  and 
made  his  calls  upon  them  for  the  necessary  margins.  In 
their  accounts,  defendants  also  treated  plaintiff  as  dealing 

for  execution  to  himself.  This  he  nary  puroliase  on  tlie  Stock  Ex- 
may  do,  but  he  cannot  appoint  an  change,  lie  is  not  liable  for  any  loss 
additional  co-ordinate  agent.  The  which  may  arise  to  the  trust  estate 
sub-agent  is  the  agent  merely  of  the  in  consequence  of  the  default  of  the 
first  Broker  and  not  of  the  Client,  Broker  employed  bv  him,  if  he  has 
and  there  is  no  such  privity  of  con-  selected  him  with  care,  and  no  cir- 
tract  between  him  and  the  Client  as  cumstances  of  siLspicion  have  been 
would  enable  him  to  sue  the  Client  brought  to  his  knowledge  which 
for  any  balance  due.  Hill  vs.  should  have  induced  him  to  dis- 
Morri.s,  1.5  Mo.  App.  322.  But  the  (rust  the  Broker.  Speight  vs. 
first  Broker  may  recover  from  his  Claunt,  4S  L.  T.  R.  (n.  s.)  279;  s.  c. 
principal  the  amount  of  his  indebt-  2.S  Alb.  Law  .1.  .W;  afT'tl  by  House  of 
edness  to  the  sub-agent.  Id.;  21  id.  Lrjnls,  .'?2  Werh.  Rep.  •J35.  (Com- 
25.S;  Mechemon  Agency,  §  197,  and  pare  Franklin  vs.  Osgood.  14  Johnfl. 
cases  there  cited.  Tvll ,  afT'g  2  Johns.  Ch.  1 ;  Suarez  vs. 

The  fact   that  one   employing  ji  UinnpcUy,  2  Sandf.  Ch.  .33(1;  Uoose- 

Broker  to  sell   property,  is  liim.self  vdt  vs  Hooscvolt,  •>  Abb.  N.  C.  1 17; 

acting  /i-s  Broker  for  another,  does  Merrill  vh    rMirtncrs'  Loan  «t  Trust 

not  discharL'e  him  from  liability  for  C<t  ,  21  Hun,  2tl7;  Newton  vs.  Bntn- 

thc  Hffcond  Bntker's  commisnionM,  if  son,  13  N.  Y    .'».s7;  Lewis  vs    Inger- 

thc  airency  of  the  first  Broker  were  soli,  3  .\bb.  Ct    .\pp    Dee.  .'i.'i?/) 

not  disclosed.     Jarvis  vs.  Schaefer,  '  liooth    vs.    Fielding,    1     Week. 

10.')  .V.  Y.  2S9.  Notes.  21.'»      But  wu  Gregory  va. 

^^'herc  a  tnistee  makes  an  ordi-  Wendell,  10  .Midi.  132. 


394  Stock-lu'okers  and  Stock  Exchanges. 

directly  with  them  ;  and  he  was  charged  on  their  books 
with  the  stocks,  coraniissions,  and  interest,  and  credited 
with  the  proceeds  of  sales.  Held,  that  defendants  were  the 
agents  of  plaintiff,  and  they  could  not  ignore  G.'s  agency, 
and  cast  the  responsibility  of  a  loss  upon  plaintiff,  simply 
because  his  orders  were  taken  and  obeyed  in  the  purchase 
and  sale  of  the  stocks.' 

XI.  €0111111  issiou  of  Broker. 

In  respect  to  the  commissions  or  compensation  which 
a  Stock-Broker  is  entitled  to  receive  for  transacting  the 
business  of  the  Client,  the  amount  thereof  rests  either  upon 
an  express  or  an  implied  agreement.  Of  course,  whenever 
there  is  an  express  agreement  by  which  the  amount  of  the 
commissions  is  definitely  fixed,  all  greater  or  other  rates 
are  excluded.^      But   frequently,   in    employing  a   Stock- 

'  Gheen  vs.  Johnson,  90  Pa.  St.  when  received  from  his  correspond- 

38.     To  same  effect,  see  Smith  vs.  ent  in  San  Francisco.     Waters  vs. 

N.  Y.  S.  &  P.  C.  Co.,  25  N.  Y.  Supp.  Marrin,    12  Daly,  445.     As  to  the 

261.     See  also  Ryman  vs.  Gerlach,  effect  of  the  bankruptcy  of  an  agent 

153  Pa.  St.  197.     Where  orders  are  employing;    a    correspondent,     see 

given  by  various  persons  to  a  Bro-  Le  Marchant   vs.  Moore,  150  N.  Y. 

ker  in  one  place,  and  by  him  exe-  209. 

cuted  throudi  a  second  Broker  in  ^  ^^'harton  on  Ag.  §  323;  Bowers 
another  place,  the  second  Broker  vs.  Jones,  8  Bing.  65;  Ware  vs.  Hay- 
being  g:iven  the  name  of  the  princi-  ward  Rubber  Co.,  85  Mass.  84.  An 
pal  in  each  transaction,  he  cannot  express  agreement  as  to  commission 
apply  the  gains  on  one  of  such  prin-  and  its  construction  appears  in 
cipal's  trades,  to  the  losses  resulting  Blakeslee  vs.  Ervin  (58  N.  W.  Rep. 
from  those  of  another  such  princi-  850),  where  a  Broker  contracted  to 
pal.  Baxter  vs.  Allen,  46  111.  App.  sell  certain  stocks  for  the  owner,  re- 
464  taining  as  compensation  whatever 

Although   a   New  York    Broker  they  sold   for   above  par,   and  he 

who    has    been    instructed    to    sell  made  a  sale  at  par  and  an  unac- 

mining  stock  employs  a  San  Fran-  crued  dividend.     This  was  held  to 

Cisco  Broker  to  sell  it,  there  being  no  be  a  sale  at  a  price  above  par  by  the 

market  in  New  York,  he  is  liable  as  amount  of  such  dividend  and  the 

a  trustee  for  the  proceeds  of  the  sale  Broker  was  entitled  to  that  amount. 


Coniinissions.  395 

broker,  nothing  is  said  as  to  the  amount  of  his  commissions, 
in  which  case  they  must  be  ascertained  by  other  means. 
There  is  a  uniform  rate  fixed  by  the  Xew  York  Stock  Ex- 
change which  is  generally  observed  by  the  Brokers  in  deal- 
ings with  their  Clients.'  And  the  law  seems  to  be  that 
where  a  Broker  is  employed,  and  no  special  compensation 
is  agreed  upon,  the  rate  of  brokerage  customarily  charged 
for  the  same  services  is  the  proper  measure  of  damages. 
The  parties  are  then  presumed  to  have  contracted  in  ref- 
erence to  the  usage.- 

As  has  been  shown  in  the  chapter  on  "Usages,"  the  law 

'  Art.  XXXR'.  Const.  Xew  York  of  the  article.  By  §  4  a  proposition 
Stock  Exchanse.  By  sec.  2  all  to  accept  less  rates  shall  constitute 
commi.ssions  shall  be  calculated  on  a  violation  of  the  article,  the  pen- 
the  par  value  of  securities,  and  the  alty  for  which  is  suspension  for  a 
rates  shall  be  a.s  follows:  (a)  On  first  offence,  and  expulsion  for  a  sec- 
business  for  non-members,  indud-  ond  offence  (^  6). 
ing  joint  account  transactions  in  These  rules,  like  any  other  rules 
which  a  non-member  is  interested,  and  regulations  in  the  contempla- 
transactions  for  partners  not  mem-  tion  of  the  parties  when  contracting, 
hers  of  the  Exchange,  and  for  firms  would  be  admissiljle  in  evidence  in 
of  which  the  Exchange  member  or  an  action  by  the  Broker  for  his 
members  are  special  partners  only,  commissions.  Bibb  vs.  Allen,  149 
the  commi.ssion  shall  not  be  less  U.  S.  481.  If  the  contract  is  de- 
than  one  eighth  of  one  per  cent;  nied,  evidence  of  the  Xew  York 
(6)  On  bu.sine.ss  for  members  of  tlie  rates  of  commission  is  admi.ssible. 
Exchange,  the  commission  shall  not  Rul>ino  vs.  Scott,  118  X.  Y.  6G2. 
be  less  than  one  thirty-second  of  one  '  Morgan  vs.  Mason,  4  E.  D. 
per  cent,  except  wliere  a  principal  is  Smith  (X.  Y.),  030;  Miller  vs.  Iiw. 
given  up,  in  which  case  the  conunis-  Co.  of  Xorth  .\merica,  1  .\i).  New 
sion  .shall  not  be  less  than  one  Cjls.  id.  470,  and  note,  which  con- 
fiftieth  of  one  per  cent;  (c)  (Jn  min-  tains  a  collection  of  cime^s  on  the  cx- 
ing  shares  and  sub.scription  rights  tent  to  which  usage  is  admissil)!e  to 
such  rates,  to  members  and  non-  establish  a  rate  of  <'()mpcnsntion; 
members,  as  may  be  determined  see  also  Erl)en  vs.  I.orillard.  '2 
from  time  to  time,  by  the  comnjittee  Keyes  (\'.  Y),  .WT;  .Vtlanis  vs. 
oncommisHions,  with  the  approval  of  Capron,  21  Md.  IHO;  Deshler  vs. 
the  govcniitig  committee;  (di  Guv-  Beers,  32  III  .3tV.S;  Potts  vs  .\ech- 
cniment  and  nMwiicijwd  securilif's  ternarht.  \>'.\  Vn  St.  l.'W;  Bilib  va. 
are  exempted  from   lh<'  iirovjsions  .Mien,  1  I'.J  l'.  S    Isl. 


;5y(;  Sto(k-ln-<»k('rs  and  Stock   Kxchanj^es. 

is  that  where  there  is  a  general  usage  in  any  particular 
trade  or  branch  of  business,  parties  having  knowledge  of 
the  usage  are  presumed  to  contract  in  reference  to  it ;  and, 
if  the  usage  does  not  conflict  with  the  terms  of  the  contract, 
it  will  be  deemed  to  enter  into  and  constitute;  a  part  of  it. 
Knowledge  of  the  usage  may  be  established  by  presumptive 
as  well  as  by  direct  evidence.  It  may  be  presumed  from 
surrounding  facts,  as  the  uniformity,  long  continuance,  and 
notoriety  of  the  sarae.^ 

And  it  is  held  ^  that  an  agreement  between  Brokers  to  share 
commissions  earned  by  one  on  information  given  by  the 
other  is  legal. 

But  it  seems  that  a  Broker  or  Agent  is  not  always  en- 
titled to  a  commission,  although  he  may  have  performed 
the  work  or  transacted  the  business  for  which  he  was  em- 
ployed, 

Mr.  Parsons  lays  down  a  proposition^  which  seems  to  be 
very  generally  accepted  by  the  coui'ts,  that  "  neither  a  fac- 
tor nor  a  Broker  can  have  any  valid  claim  for  his  commis- 
sions or  other  compensation  if  he  has  not  discharged  all  the 
duties  of  the  employment  Avhich  he  has  undertaken  with 
proper  care  and  skill  and  entire  fidelity."  This  necessarily 
embraces  all  acts  of  bad  faith  on  the  part  of  the  Broker ; 
and  it  even  applies  where  a  Broker,  without  fraudulent  in- 
tent, receives  commissions  f  I'om  a  conflicting  interest.^ 

In  the  State  of  Kew  York,  however,  it  has  been  held 

'See    chap,    on    "Usages"    and  '  Pars.  onCon.  (7th  ed.)  *100,  and 

cases  cited  above.     See  also  East-  authorities  cited, 

erly  vs.  Cole,  3  X.  Y.  502.  *  Wharton  on  Ag.  §  3.36;  Storj'  on 

'  MrT>aiifihlin  vs.   Barnard,   2  E.  Ag.  (9th  ed.)  §   331;  Levy  vs.  Loeb, 

D.   Smith    ex.   Y.),  372.     See  also  85  X.  Y.  365,  aff'd  on  new  trial,  89 

Hart  vs.  Garrett,  87  A.  D.  .536.  X.  Y.  386;  Hafner  vs.  Herron,  165 

lU.  242. 


Coinmissioiis.  397 

that  where  a  trustee  wrongfully  invested  trust  funds  iu 
securities  not  authorized  by  law,  such  act  did  not  deprive 
him  of  his  right  to  commissions  ;  and  Mr.  Justice  AVoodrutf 
doubted  whether  even  misconduct  or  gross  negligence  would 
operate  to  debar  trustees  of  their  authorized  compensation, 
where  no  imputation  of  fraud  rests  upon  them.' 

A  Broker  is  never  entitled  to  commissions  for  unsuccess- 
ful efforts,  even  though,  after  his  failure  and  the  termina- 
tion of  his  agency,  his  labor  proves  of  use  and  benetit  to 
his  principal.  He  does  not,  however,  lose  his  commissions 
where  his  effoi'ts  are  rendered  a  failure  by  the  fault  of  his 
principal,  or  where  the  purchaser  declines  to  complete  be- 
cause of  a  defect  which  is  the  fault  of  the  principal.'-^ 

'  King  vs.  Talbot,  40  N.  Y.  76;  ward  sending  or  tendering  the 
Vanderheyden  vs.  Vanderheyden,  2  money  to  him,  in  order  to  main- 
Paige  (X.  Y.),  288;  Rapalje  vs.  tain  an  action  for  commissions. 
Xors worthy,  1  Sand.  Ch.  (id.)  406;  Mattingly  vs.  Roach,  S4  Cal.  207; 
Meacham  vs.  Stearns,  9  Paige  (id.),  see  supra,  s.  c.  sub  nom.  Mattingly 
405.  vs.    Pennie.     The   readiness   of  the 

'  Sibbald  vs.  Bethlehem  Iron  Co.  prosj)ecti\e  purchaser  or  vendor, 
(X.  Y.  Ct.  App.),  11  X.  Y.  Week,  procured  by  tlie  Broi<er  to  buy  or 
Dig  44.5;  Berg  vs.  San  .Vntonio,  42  sell,  can  only  be  made  to  appear  by 
S.  W.  Rep.  647.  When  the  Broker,  showing  that  the  Broker  had  pro- 
employed  to  effect  a  sale  or  purcha.-<e,  cured  from  him  a  valid  contract  of 
ha.s  found  a  party  ready  and  willing  purchiise  or  .sale.  .\  vcrljal  agree- 
to  .sell  or  purcha.se  upon  the  terms  inent  only  with  a  Broker  to  do  some- 
offered  and  of  suffiiiont  responsil>il-  tiling  which  by  the  terms  of  the 
ity,  he  has  performed  !iLs  contract  Statute  of  Frauds  .should  liave  l)een 
ancl  is  entitled  to  his  (*ommi.ssions.  tigreed  to  l)e  done  in  writing,  does 
Thompson  vs.  .Mayor,  .5S  .\.  Y.  not  entitle  the  Broker  to  cominis- 
Supp.  203;  Owl  Canon  Gypsum  Co.  sions.  Mattingly  vs.  IVnnic,  10.5 
V8.  Ferguson,  'iO  Pac.   Rep.  255;  2  Cal.   514. 

Colo.  .\pp.  219;  Du<'los  V8.  Cunning-  And    if   the   party   foun<l   by  the 

ham,  102  .\'.  Y.  67S;  Mattingly  vs.  Broker    procures    another     person 

Roacli,   S4   Cal.    2f)7;    Mechcin    on  (without  being  authori/itl  so  to  do 

.Agency,    $  966      Therefore,    if    the  by    the    Broker)    to    purchiu**'    the 

Client  repudiatf-s  tlie  Broker's  con-  Ktock    which    the    Broker    wa.s   em- 

trai't,  it  is  not  necessary  for  the  l.ii-  jtloycd   id  .sell,    the   Broker   is   not 

tcr  to  take  any   further  wleps   to-  eiititle<l  t«)  commiMHionN.     Jonm  vh. 


398  Slock-brokors  and  Stock  Exchanges. 

What  constitutes  a  faithful  porformance  of  the  r>rolver's  du- 
ties depends  greatly  upon  the  nature  of  the  business  commit- 
ted to  his  hands.  It  has  been  held,  for  instance,  that  he  is 
obh'ged  to  keep  and  render  a  correct  account  of  the  business 
transacted.'  And,  altliough  he  may  not  absolutely  forfeit 
his  commission  by  a  failure  to  do  this,  it  may  l)e  construed 
as  a  failure  of  duty  on  his  part,  or  as  a  suppression  of  evi- 
dence.'^ 

The  case  of  Hoffman  vs.  Li\dngston^  peculiarly  illus- 
trates the  question  of  a  right  of  a  Stock-broker  to  recover  his 
commissions.  The  plaintiff  there  sued  to  recover  his  com- 
missions on  transactions  in  stocks  made  for  account  of  de- 
fendant. The  transactions  were  conducted  by  the  plaintiff 
under  an  arrangement  by  which  the  latter  speculated  for 
the  defendant  under  a  discretionary  order,  buying  and  sell- 
ing whenever  he  deemed  it  advisable.  Under  this  arrange- 
ment plaintiff  made  numerous  transactions,  resulting  in  a 

Frost,  53  N.  Y.  Supp.  575,  aff'd  62  tions  in  an  answer  will  not  suffice  to 
N.  Y.  Supp.  1102.  If  the  jight  defeat  a  Broker's  claim  for  com- 
to  recover  commissions  is,  under  the  missions  and  advances,  see  Myers 
contract  of  employment  to  sell  vs.  Paine,  13  App.  Div.  332;  aff'd  57 
bonds,  made  to  depend  upon  the  N.  E.  Rep.  11  IS. 
fact  of  the  bonds  being  sold  and  '  Clark  vs.  Moody,  17  Mass.  145. 
their  proceeds  received,  the  Broker  If  the  Broker  reports  fictitious  deal- 
is  not  entitled  to  commissions  on  ings  he  is  not  entitled  to  commis- 
bonds  which  he  contracts  to  sell  at  sions.  Prout  vs.  Chisolm,  21  App. 
a  price  which  the  vendor  refuses  to  Div.  58.  As  to  evidence  on  which 
accept.  Coffin  vs.  Coke,  6  T.  «t  C.  the  Broker  may  go  to  the  jury,  see 
(N.  Y.)  71.  Armstrong  vs.  Village,  159  N.  Y. 
The  Broker.  howe\er,  need  not  315.  See  also  Burns  vs.  Campbell, 
personally  introduce  the  purchaser  71  .\la.  271 . 

to   the    principal.   Hafner  vs.  Her-  ^  Lupton    vs.    'White,    15    Vesey, 

ron.  165  111.  212.  and  it  is  immate-  432,    640;    Hart   vs.    Ten   Eyck,    2 

rial  if  the  principal  effects  a  sale  on  Johns.  Ch.  42,  108. 

other  terms  with  the  party  intro-  '  14  J.  &  S.  (N.  Y.)  552. 
duced.     Id.     As  to  when  the  all ega- 


Cominissious.  399 

loss  to  the  defendant  of  a  large  sum,  more  than  one  half 
of  which  was  for  commissions.  Xotice  of  each  transaction 
was  not  given  to  the  defendant  in  accoixlance  with  the  cus- 
tom of  Brokers. 

The  action  was  contested  on  the  ground  that  tlie  circum- 
stances showed  that  the  operations  were  made  with  a 
view  of  merely  yielding  commissions  for  the  benefit  of  the 
Broker,  and  it  was  held  that  the  failure  of  the  latter  to 
give  notice  to  his  Client  of  each  transaction  was  a  nefflect 
of  duty  which  was  a  sufficient  bar  to  the  recovery  of  com- 
mission. The  rule  of  law  is  that  if  the  Broker's  services  are 
wholly  abortive,  or  executed  in  such  a  manner  that  no 
benefit  results  from  them,  he  is  not  entitled  to  recover 
either  his  commissions  or  even  a  compensation  for  his  trou- 
ble. That  the  question  is  one  of  due  diligence  and  ordinary 
skilly  and  the  want  of  this  may  be  the  result  of  inattention  or 
incapacity.  It  is  not  necessary  in  such  case  for  defendant 
to  show  actual  fraud.' 

It  has  also  been  held  that  a  Broker  employed  to  purchase 
government  bonds  for  a  Client  cannot  act  in  the  same  trans' 
action  as  agent  for  the  seller,  and  receive  commissions  from 

'  For  cases  where  Stock-brokers  pleted.     Bibb  vs.  Allen,  149  U.  S. 

have  sued  for  commissions  earned  in  197;  Quinlan  vs.  Raymond,  Daily 

illegal  tran.sactions,  and  for  money  Raj.  July  29,  1S86,  aff'd  3  .\.  Y.  St. 

laid  out,  etc.,  in  llie  same,  see  chai>-  Hep.  .')7.'},  which  also  held  that  the 

ter"Stock-jobl)in(;."  statute  should  be  specially  pleaded 

Itcaiuiotbe  interposed  as  a  valid  as  a  defence.     If  a  statute  or  ordi- 

deferice  or  answer  to  the  Broker's  nance    prescribes    that    Stock-bro- 

demand   for   commissions   that   his  kers  shall  be  liccnse<l,  an  unlicenseti 

contracts,  in  the  makinnandexecu-  Broker,  in  sellin;:  stocks,  does  an  un- 

tion  of  which  his  rijrht  to  commis-  lawful  act,  and  caiuiot  uuiintaiu  un 

Bions  arose,  were  not  enforceable  un-  action  for  comminnions  on  such  sale, 

der   the   Statute  oi  Frauds,  or  for  Ilustis   vs.    I'ickands,   27   III.   App. 

want  of  other  form,  if,  in  fact,  (hey  270. 
have  been  fully  exe<-ute<i  and  com- 


400  Stofk-ln-okers  and  Stock  Excliaiii^es. 

both  sides,'  although  this  may  be  done  where  the  Ghent  ex- 
pressly assents  to  the  same.''* 

Neither  is  a  grain  Broker  entitled  to  commissions  when 
his  principal's  intention  is  to  "  corner ""  the  market,  and 
such  intent  is  known  to  the  Broker.^  Nor  can  a  Broker, 
employed  to  sell  bonds,  recover  commissions,  altiiough  he 
procures  a  ])urchaser  able  and  willing  to  buy,  when,  by  the 
agreement  between  the  principal  and  the  Broker,  the  pay- 
ment of  the  commissions  depended  upon  the  pa3'raent  of  an 
instahnent  of  the  purchase  money,  which  by  reason  of  a  prior 
sale  of  the  bonds  to  the  vendors,  having  been  declared  illegal, 
and  the  delivery  thereof  perpetually  enjoined,  was  not  made.^ 

XII.  Communications  between   Broker  and   Client  not 

Privileged. 

A  wise  public  policy  dictates  that  certain  kinds  of  evi- 
dence should  not  be  received  in  legal  controversies,  either 

'Levy  vs.  Loeb,  85  X.  Y.  36.5,  cannot  act  for  both  sides,  and  so  pre- 

aff'd  on  new  trial,  89  X.  Y.  386;  Rice  serve  the  Broker's  claim  for  com- 

vs.  Davis,  136  Pa.  St.  439;  Piatt  vs.  pensation  from  the  vendee.     Xoth- 

Baldwin,  2  City  Ct.  281 ;  Hafner  vs.  ing  short  of  an  express  agreement  to 

Herron,  165  111.  242.  waive  that  rule  would  be  sufficient 

^  Levy  vs.  Loeb,  85  X'.  Y.  365;  s.  c.  for  that  purpose.       Rice  vs.  Davis, 

89N.Y.386.    A  Broker  may  recover  136  Pa.  St.  439. 
commissions  from  both  parties,  if  it       'Samuels  vs.  Oliver,  130  111.  73. 
was  promised  with   full  knowledjie        *  Owen  vs.  Ramsey,  23  Ind.  App. 

that  the  Broker  held  the  same  rela-  285.     .\s  to  when  a  Broker  will  be 

tion  to  the  other  party.    Ricev.s.  Da-  con.sidered  as  employed  jearly,  and 

vis,  136Pa.  St.439;  Jarvisvs.Schae-  iis  to  recovery  in  such  a  case,  see 

fer,  105 X.Y.  289;  Rowe vs.  Stevens,  Dean  as.  Woodward,  52  Hun,  421. 

53N.  Y.621.  The  fact  that  a  Broker  Evidence  that  the  principal  had,  in 

for  the  sale  of  .stock  receives  a  com-  a  prior  brokerage   transaction,   by 

pensation  from  the  purchaser  for  his  sharp  practice,  deprived  the  Broker 

services,  with  the  knowledce  of  the  of    his    commissions,    inadmissible, 

vendor,  and  without  any  objection  Brown  vs.  Barse,  3  App.  Div.  (N. 

from   him,    will    not    constitute   a  Y.)  257. 
waiver  of  the  rule  that  a  Broker 


Coinniimicatioiis  not  Privileged.  401 

because  of  the  confidential  relations  existing  between  the 
parties,  as  in  the  case  of  husband  and  wife,  or  because  of 
the  subject-matter  of  the  evidence  itself.  Under  this  last 
head  are  included  seci-ets  of  State  and  papers  and  communi- 
cations confided  by  a  Client  to  his  legal  adviser.  In  the  lat- 
ter case  the  attorney's  raoutli  is  not  sealed  because  of  the 
confidential  relations  existing  between  him  and  his  Client,  for 
the  privilege  was  not  extended  to  other  professions  by  the 
common-law,  but  because  the  interests  of  justice  demand 
that  the  Client  should  be  able  to  lay  before  his  counsel  the 
full  facts  of  his  case  without  fear  of  future  disclosure;  and 
this  not  only  for  his  own  assurance,  but  also  to  enable  the 
attorney  to  exercise  ]iroperly  the  duties  of  his  profession.' 

It  may  be  added  that  in  some  of  the  States  the  same  pro- 
tecting policy  has  been  extended  to  confessions  made  to  a 
clergyman,  in  the  course  of  the  discipline  enjoined  by  the 
rules  of  his  denomination,  and  to  knowledge  gained  by  a 
physician  in  attentling  a  patient,  which  knowledge  was  neces- 
sary to  enable  him  to  prescribe  for  the  disease.^  And  in 
England^  Best,  C.  J.,  said  that  he  for  one  would  never 
compel  a  clt?rgyman  to  disclose  a  communication  made  to 
him  by  a  j)risoner. 

It  seems,  however,  th:it  the  piivilege  may  be  waived.* 
The  principle    whidi  underlies    the  exclusion  of    this  evi- 

'  The  earlie«it  reportctl  case  on  the  §§  SXi,  KH;  Rev.  Stut.  ui  .Mo.  181)9, 

subject  Ls  Herd  vs.  Lovelace,  Cary  §  Kiril);   Hpv.  Stat,  of  Mich.    1897, 

(anno  19  KHz  ),  HS;  sec  ulna  (Jrecn-  §§  l(),l.S()-10,l.Sl . 
ouKh  vs.  Ga«kcll,  1  Myl.  &  K.  101 ;  1        '  Hroad  v.s.  Titt,  A  Car.  &  V  .-ilS. 
Greenle.if  on   Kv.   flCth  etl.)    §  2;}0        M    (Jrccnlcaf  on   Kv.   (KJtli  e«l  ) 

et  scj.,  and  rji-scs  cited.  5  '2'M\.     In  .New  York  it  nuist  l><*  an 

*  Wi.s    Rev    Stat     ISOH,   §5  1071  i-vprcss    waiver,   npuii   the    trial    or 

407');     Iowa    (VhIc,     I.S07,     5  UiO.S;  examination,  hy  llic   perMon  confi'H- 

Siipp    of    HM)2,    (  \(V)H,   and    viim'M  n'lup,    the    patient,    or    tlie    Client, 

rited;    V     V    C<«1.-  r.f  Civil   Troc.  N.  Y.  Code  Civ.  Proc.  |  830 


402  Stock-brokers  and  Stock  Exchanges. 

dence  is  that  of  public  policy :  the  public  benefit  arising 
from  its  suppression,  in  the  great  maj(jrity  of  cases,  over- 
Aveighs  the  occasional  hardship  of  the  rule  when  applied  to 
particular  instances.^ 

"Although,  in  practice,  the  communications  and  transactions 
between  a  Broker  and  his  Client  are  regarded  and  observed 
as  sacredly  confidential,  yet  they  are  not  considered  as  being 
in  anywise  embraced  within  the  rules  to  which  we  have 
alluded.  In  a  case  in  England  ^  a  Stock-broker  was  held 
bound  to  discover  the  names  of  the  persons  for  whom  he 
had  purchased  shares  in  a  joint-stock  company  which  had 
neither  been  incorporated,  chartered,  nor  registered,  and 
which  was  regulatetl  by  no  deed  of  settlement,  and  whose 
shares  passed  by  delivery.  The  case  is  valuable  in  demon- 
strating that  the  liability  of  a  Broker  to  answer,  in  ordinary 
transactions  between  himself  and  Client,  is  unquestioned; 
that  only  in  cases  presenting  special  features  can  he  refuse  to 
answer,  and  his  refusal  in  such  cases  would  be  grounded  on 
no  peculiar  privilege  extended  to  Brokers,  but  on  a  protection 
common  to  all  classes ;  as,  for  instance,  where  the  Broker 
relies  on  the  rule  of  law  exempting  persons  from  testifying 
where  their  answers  would  expose  them  to  a  fine,  penalty, 
or  criminal  prosecution.^ 

The  case  of  The  Mercantile  Credit  Association^  also 
strongly  illustrates  this  point.  In  winding  up  this  associa- 
tion the  name  of  one  D.  appeared  on  the  list  of  shareholders 

'  Greenleaf  on  Ev.  §  236.  answer  mis^ht  subject  him  to  the 

^  Re  Mex.  and  So.  Am.  Co.,  re  penalties  of  the  stock-jobbing  act. 

Aston,  27  Beav.  474;  aff'd  18  L.  T.  Short  vs.  Mercier,  3  M.  &  G.  205. 

596.  And  see  Cloves  vs.  Thayer,  3  Hill, 

^  Thus  a  Stork-broker  may  refuse  564;  Poindexter  vs.  Davis,  6  Gratt. 

to   answer    questions    as    to    stock  481 . 

transactions  on  the  ground  that  his  *  37  L.  J.  (n.  s.)  pt.  1,  295. 


Communications  not  Priviloijed.  403 

as  a  holder  of  certain  shares.  ''  Calls  "  had  been  made  by 
the  official  liquidator  on  these  shares,  no  part  of  Avliich  had 
been  paid.  The  liquidator  having  caused  inquiries  to  be 
made  with  respect  to  the  ability  of  D.  to  pay  the  calls,  it 
was  discovered  that  he  had  no  projierty  whatever  ;  and  that, 
at  the  time  the  shares  were  transferred  to  him,  he  was  an 
infant  living  with  his  father,  receiving  wages  as  clerk  to  a 
law  stationer,  but  Avith  no  other  source  of  income.  The 
transfer  had  been  made  to  him  with  his  consent,  and,  al- 
though he  had  come  of  age,  he  had  not  repudiated  it.  One 
C,  a  Broker,  had  proposed  to  act  on  his  behiilf  in  the  matter 
of  the  transfer,  and  it  was  through  C.'s  agency  that  D.'s 
name  was  placed  upon  the  register.  The  official  liquidator 
applied  to  the  Broker  for  information  as  to  the  circum- 
stances attending  the  transfer,  in  the  hope  of  being  able  to 
make  the  transferor  liable  for  the  amount  due  on  the  shares, 
but  the  Broker  refused  to  give  any  such  information.  The 
liquidator  accordingly  moved  for  an  order  to  summon  him 
before  the  court  for  the  purpose  of  being  examined  as  a 
person  whom  the  court  might  deem  capable  of  giving  infor- 
mation concerning  the  trade,  dealings,  estate,  or  effects  of 
tlie  company. 

"Wood,  y.  ( ".,  in  giving  his  f)pinion,said  tliat  lie  "  wius  sur- 
prised that  such  applications  should  always  be  strenuously  o[>- 
posedon  beiialf  (jf  thf  projtosed  witness;"  and  lu; accordingly 
ordered  that  C,  should  be  sumnjoncd  to  attend  the  judge  in 
chambers  at  such  times  as  the  judge  might  dcsighatc,  t(»  l>o 
examined  as  llm  judge;  might  direct  touching  the  eslnti'  and 
effects  of  the  as.sociatioti.' 

'  To  Harnc  effert,  ('(nitnict  Corpti-  Cirofii  vb.  Wcjivcr,  1  Sim  Id  I;  \\  il- 
ralioii,  -10  I-.  .1.  ("li  1.').  Sec  uIhi)  liaiiiM  vh.  Tyre,  IS  Uoav.  .'}(Ki;  .Mat- 
HawlingH  vh.   Hall,    1  Cur.  d:  T.  1 1 ;    tlu^w's  VmI.,  i  Am.  L.  J.  (ii.  h.)  n.'iO; 


404  Stock-brokers  and  Stock  Excliaiiffos. 

The  few  adjudicated  cases  show  that  the  courts,  recog- 
nizing no  public  policy  sulficiently  urgent  to  demand  the 
secrecy  of  such  transactions,  have  uniformly  checked  the 
effort  of  the  Broker  to  place  himself  in  the  category  of  those 
protected  by  the  law  of  privileged  communications. 

It  by  no  means  follows,  however,  because  sucli  trans- 
actions are  not  privileged,  that  they  are  [)ublic ;  that  a  re- 
sort to  a  Broker's  books  can  be  had  ad  lihitain,  to  satisfy 
an  idle  curiosity,^  or  entries  thrown  open  to  what  the  courts 
have  termed  a  "fishing  excursion."  On  the  contrary,  the 
the  courts  scan  "with  jealous  eyes  all  attempts  of  that  nature  ; 
and  it  is  onlj'  where  the  party  shows  a  clear  legal  right  to 
the  remedy,  and  in  cases  where  the  interests  of  justice 
demand  a  discovery,  that  a  Broker's  books  or  a  Broker's 
testimony  as  to  dealings  with  his  Client  is  evidence  at  the 
instance  of  an  adverse  suitor. 

XIII.  Puts,  Calls,  Straddles  and  Pools  (Considered  Apart 
from  their  Wagerinj;  Aspect . 

It  is  proposed  to  consider  these  dealings  apart  from  any 
aspect  they  might  have  as  wagering  transactions,  as  to 
which  see  Chapter  V.,  "Stockjobbing." 

When  a  "put"  is  purchased  outside  of  the  Stock  Ex- 
change through  a  Broker  not  a  member  of  the  Stock  Ex- 
change, a  I'ule  of  the  Exchan^^e  that  dividends  declared 
prior  to  the  closing  of  the  transfer  books  shall,  as  to  trans- 
actions other  than  for  cash,  be  "dividend  off"  (i.  e.  shall 
not  be  payable  to  the  owner  of  the  stock),  is  not  apphca- 

In  re  Finan.  Ins.  Co.  (Lim.),  36  L.  J.  compelled  to  state  the  names  of  the 

(n.  s.)  6S7.  person  with  whom  he  has  dealt  in 

'  .\  Broker  examined  to  prove  the  such  stock.     Jonau  vs.  Ferrand,  3 

market  value  of  a  stock  cannot  be  Rob.  (La.)  366. 


Puts,  Calls,  Straddles  and  Pools.  405 

ble  where  a  dividend  has  been  declared  on  the  stock  pi-ior 
to  the  contract,  but  is  not  payable  till  after  the  closing  of 
the  transfer  books,  and  after  the  day  when  the  option  to 
deliver  the  stock  expires.  In  such  a  case  the  dividend  be- 
longs to  the  owner  of  the  stock  at  the  time  it  was  declared, 
and  therefore,  in  tlie  case  under  consideration,  it  was  held 
to  belong  to  the  seller  of  the  stock.' 

A  "  call  "  is  an  agreement  to  sell,  and  as  such  it  required 
a  stamp  under  the  AVar  Revenue  Actof  1890,  since  repealed, 
although  a  "  put,''  or  an  agreement  to  buy,  did  not  require 
such  a  starap.^ 

If  a  Broker  sells  a  "  straddle  "  it  is  his  duty  to  close 
the  contract  thereby  created  by  exercising  the  option  at  the 
most  favorable  time  in  the  purchaser's  interests  within  the 
period  during  which  the  option  may  be  exercised,  and  if  he 
sells  "  short  "  the  day  after  the  making  of  the  contract,  and 
the  stock  subsequent!}''  goes  up,  he  will  be  liable  to  pay  the 
purchaser  what  the  latter  lost  by  his  neglect.^ 

If  one  of  the  parties  to  a  "  pool  "  f(jrmed  to  speculate  in 
certain  stock,  should  withdraw  from  the  pool,  and  take  up 
and  pay  for  his  interest  therein,  notice  should  be  given  by  the 

'  Hopper  vs.  Sage,  112  N.  Y.  530,  ".striwlcllc"    moans    not    sitnply    !i 

and  ca.ses  cited.  person  hii\in;i  the  paper  in  lii.s  intli- 

*  Treat  v.s.   White,  iSl  U.  S.  2frl.  vidual  custody,  l)ut  one  apparently 

*  Harri.s  vs.  Tiiinhridue,  8  Abb.  .\.  exercising  an  individual  dominion 
C.  291,  aff'd  83  -V.  Y.  92.  The  pur-  thereof  as  owner,  and  the  party  ob- 
ties  to  a  "straddle"  may,  of  course,  iipited  by  the  "straddle"  i.s  still 
by  special  aj;reement,  vary  its  effect,  bound  to  the  true  owner,  thou;;h  he 
and  settle  their  ri^^hts  under  it  be-  may  have  settled  with  one  present- 
fore  the  pf.'rio<l  of  its  expiration,  by  ing  it  to  him,  if  it  was  presenle<l  \n»- 
Kivinj^  and  receivint;  a  fi\e<l  sum  der  circumstanc«>s  that  chari:ed  him 
therefor,  or  otherwise.  Van  Nor-  with  the  risk  of  tlw  one  pn-smtinu 
den  vs.  Ke<;ne,  55  .\.  Y.  Suikt.  Ct.  it  not  beitin  the  traiwferee  theruof. 
fi?  Id. 

The    term    "bearer"    ummI    in    a 


406  Stock-brokers  and  Stock  Exchanges. 

Brokers  to  the  other  parties  thereto,  but  the  failure  to  give 
such  notice  is  not  material  if  the  other  parties  in  interest 
are  not  prejudiced.'  And  in  an  action  by  the  Brokers  tore- 
cover  commissions  and  outlay,  an  answer  alleging  the  pool 
combination,  antl  that  one  of  the  parties  withdrew  from 
the  pool,  but  which  does  not  allege  that  the  Brokers 
failed  to  notify  defendants  of  such  Avithdrawal,  or  that  in- 
jury resulted  to  defendants,  and  which  merely  asks  for  a 
dismissal  of  the  complaint,  does  not  raise  sufficient  matter 
of  defence.^  In  that  case  defendant  on  the  trial  claimed 
that  the  failure  to  give  notice  was  a  breach  of  contract,  and 
that  defendant  was  therefore  entitled  to  the  market  price 
of  his  stock  as  of  the  day  of  the  breach,  and  not  as  of  the 
day  of  the  closing,  some  months  later,  when  the  stock  had 
fallen  considerably,  but  the  court,  as  already  stated,  found 
against  this  contention,  as  the  issue  was  not  proj)erly  raised 
by  the  pleadings  and  prayer  for  relief  in  the  answer.^ 

When  a  pool  was  formed  between  certain  persons  and  a 
firm  of  Brokers  to  purchase  and  sell  land,  the  profits  and 
losses  to  be  divided  in  certain  })roportions,  and  the  Brokers 
to  receive  a  certain  commission  and  to  buy  and  sell  as  prin- 
cipals, it  was  held  that  they  could  not  be  sued  as  Brokers 
Avithout  recourse  to  the  agreement,  and  as  the  latter  was  for 
an  illegal  purpose,  viz.,  to  "corner"  land,  the  action  could 
not  be  maintained.* 

Xiy.  The  Clearing  House. 

The  Stock  Exchange  Clearing  House  was  established  in 
New  York  City  in  May,  1892  (in  extension  of  the  system  of 

'  Myers  vs.  Paine,  13  App.  Div.        ^  Id 
332;aff'd57N.E.  Rep.  1118.  ^Leonard   vs.    Poole,    55    N.   Y. 

» Id.  Super.  Ct.  213;  aff'd  114  N.  Y.  371. 


The  Clearing  House.  407 

clearings  established  by  the  banks  of  that  city  in  October, 
1853)  to  prevent  the  necessity  of  numerous  transfers  of 
stock  from  hand  to  hand.  Matters  are  settled  by  a  com- 
bination of  stock  bahmces  and  cash  balances,  both  beiitg 
very  small  in  proportion  to  the  aggregate  of  business  done,' 
and  similar  institutions  have  been  established  in  some  of  the 
principal  cities  of  the  United  States. 

The  London  Stock  Exchange  had  adopted  the  clearing 
principle  in  ISTl.  Tide  Cliapter  X,,  p.  991,  note  1.  See 
also  Brodhurst  on  the  Law  of  the  Stock  Exchange  (pp.  70- 
72),  in  which  the  method  of  settlement  of  large  transactions, 
through  the  aid  of  the  Clearing  House,  is  shown  in  full  detail. 

Notwithstanding  the  great  advantage  of  the  Clearing 
House  from  a  business  point  of  view,  in  rendering  unneces- 
sary the  manual  delivery  of  a  great  number  of  stock  and 
share  certificates,  and  of  the  actual  payment  and  receipt  of 
large  sums  of  money  representing  the  price  of  securities 
bought  and  sold,  the  Supreme  Court  of  Pennsylvania  has 
held  that  a  delivery  made  on  the  Clearing  House  sheet  was 
a  mere  settlement  of  differences,  and  void  at  common 
law  ;^  but  that  this  view  is  erroneous  is  thus  ably  pointed 
out  by  the  Messrs.  Biddle  in  tlieir  excellent  work  on  the 
Law  of  Stock-brokers,  at  p.  01  :  "  The  Clearing  House  is  the 
agent  of  both  of  the  parties,  and  wlierc  a  soUing  IJiokcr 
sends  to  it  his  account  of  sold  shares,  the  Clearing  House 
in  such  a  case  is  authorized  by  the  buying  Broker  to  accept 
such  shares,  and  if  such  an  account  were  to  contain  nothing 

'  Johiisoii'H  Universal Cyclopufdia,  House     Law;     .\rts.     XXVI.     and 

vol,     2,     p.     323,     title     "Cleanup;  XXVII.  Const,  of  the  N.  Y.  Stock 

House";   liiddle  on  Stock-brokers,  E-Xchanne. 

p.   55  et  wq.;    IJi.sljce  &   Simoiid'H  *  Dickson's  Kxecutor  vs  Thoin.'Ls, 

Law    of    the     Vrodna;     K.xcliannc,  10  W.  N.  C    112.     See  also  Uucliiz- 

i  38.     See  also   Wataon's  Clearins  ky  vs.  iJe  Haven,  10  W.  N.  C.  109. 


408  Stock-brokers  and  Stock  Exchanges. 

but  sold  shares,  the  Clearing  House,  as  the  agent  of  a  buy- 
ing Uroker,  would  simply  direct  the  selling  Broker  to  de- 
liver the  shares  to  his  (the  Clearing  House's)  principal ;  but 
where  the  account  contains  bought  as  well  as  sold  shares, 
the  Clearing  House  then,  acting  as  the  agent  of  both  the 
Brokers,  sets  off  one  transaction  as  against  the  other.  This 
the  ])rincii)als  themselves  might  perfectly  legally  do,  and 
consequently  it  is  obvious  that  tiieir  agents  may  do  the 
same.  In  fact  the  sheets  sent  to  the  Clearing  House  by 
the  different  Brokers  are  substantially  nothing  but  bills  of 
sale  made  by  them,  and  made  to  them,  and  sent  to  their 
common  agent,  the  Clearing  House."" 

And  that  transactions  closed  in  accordance  with  the 
Clearing  House  Rules  of  the  Chicago  Stock  Exchange  are 
not  framino:  contracts,  where  there  is  no  evidence  of  an  in- 
tention  merely  to  settle  differences,  has  been  decided  by  the 
Supreme  Court  of  the  United  States  in  Clews  vs.  Jamieson,^ 
in  the  report  of  which  case  the  rules  of  the  Chicago  Clear- 
ing House  as  to  buying  and  selling  "for  the  account"  are 
set  forth  at  length.  And  settlements  of  differences  through 
the  Clearing  House  have  been  also  held  valid  in  A^an  Dusen- 
Harrington  Co.  vs.  Jungeblut,^  by  the  Supreme  Court  of 
Minnesota, 

That  the  Clearing  House  system  cannot  be  used  as  a  cover 
for  fictitious  transactions,  but  that,  on  the  contrary,  its 
records  can  (in  the  absence  of  proof  by  the  Broker's  books, 
showing  the  names  of  parties  from  whom  they  bought  or 
to  whom  they  sold  stock,  that  the  transactions  were  real) 
be  used  in  evidence  for  the  purpose  of  showing  that,  as  the 
majority  of  the  alleged  transactions   were  never  clearred, 

»  182  U.  S.  461.  ^  77  N.  W.  Rep.  970. 


Tlio  Cleariiiir  House.  409 

they  never  in  fact  occurred,  is  the  result  of  the  decision  in 
Prout  vs.  Chisolm.' 

In  that  case,  in  which  a  Client  sought  to  recover  moneys 
and  securities  deposited  with  his  Broker  as  margins,  on  the 
ground  that  numerous  transactions  of  buying  and  selling 
reported  by  the  Broker  Avere  all  fictitious,  it  was  held  that, 
as  it  appeared  that  the  Clearing  House  sheets  transmitted 
to  the  Clearing  House  daily  by  the  Brokers  who  had  bought 
and  sold  on  the  Exchange  were  destroyed  at  the  end  of  thirty 
days,  the  Clearing  House  ledgers  were  competent  evidence 
of  the  facts  stated  therein,  when  the  clerk  who  made  the 
entries  testified  to  tlieir  accuracy,  and  that  he  made  them 
from  the  Clearing  House  sheets  themselves,  and  it  was  also 
held  that  where  a  failure  to  clear  or  leportthe  transaction 
was  continuous,  the  conclusion  was  justified  that  the  trans- 
actions did  not  occur,  although  such  a  presumption  might  not 
arise  if  only  a  few  transactions  were  not  reported  or  cleared. 

In  some  localities  a  custom  similar  to  the  Clearing  House 
system,  and  known  as  "  ringing  up,"  ])revails  amongst 
Brokers  and  commission  merchants,  by  which,  when  a 
series  of  contracts  have  been  made  for  the  .sale  of  the  same 
kind  of  jjrain  for  future  deliverv,  the  IJrokers  actinfj  for 
buyers  and  sellci-s  .settle  by  what  they  call  a  "ring,"  that 
is,  by  whi'h  they  reciprocally  suni'iuh  r,  oi-  eanccl,  eon- 
tracts  and  adjust  dilferences.'  This  custom,  \\\wn  not 
adopted  to  promoK^  ;i  gambling  contract,  is  not  illegal.' 

'21  App  Div..->J.  voritp,    10   111.   2(W;    Loiiorpun   vh. 

*See    Wiliuir  vs.    Irwin,  11    Hiks.  St ••wurt,  .'».')  Ill   41;  Donne  vs.  Dim- 

60,  for  a  detailed  de«friptiori  of  this  hum,  7'.)  III.  \'^\ ;  Hiiiloy  vs.  lU'iiMry, 

cast/jm.  S7  III.  .Vin;  I, yon  vh.  CnllKTl.Kon,  S.'l 

*  Clarke    vs.    Ffww,    7    Hiss.    MH;  III    '.i'-i;  Olduniluiw  vs.   Kuowlcs,    1 

Ward  VH.  Vo.sbiirKli,  'U    Ke<l.  Hep.  Urad.  G.'J. 
12.     Sec    iiluo    Home   Co.    vjj.    Fa- 


410  Stock-brokers  and  Stock  Exchanges. 


Chapter  IV. 
USAGES  OF  STOCK-BROKERS. 

/.   General  Rules  relative  to   Usages. 
11.   Cases  in  which  Usages  of  Stock-hrokers  held  Binding. 
(«.)  In  the  Zfyiited  States, 
(h.)   In  England. 
III.   Cases  in  wJtich  Usages  have  been  R^ected. 
{a.)   In  the  United  States. 
(^.)   In  England. 

I.  Oeneral  Rules  relative  to  Usages. 

A  rule  of  law  laid  down  in  the  elementary  works  as  being 
■well  settled  is,  that  a  contract  should  be  interpreted  in  ac- 
cordance with  tlie  intention  of  the  parties  thereto,  and  that 
the  "  usage  "  or  "  custom  "  of  any  particular  trade,  occupa- 
tion, business,  or  place,  when  it  is  reasonable,  uniform,  well 
settled,  and  not  in  opposition  to  fixed  rules  of  law  or  in  con- 
travention to  the  express  terms  of  a  contract,  is  deemed  to 
form  a  part  of  the  contract  and  to  enter  into  the  intention 
of  the  parties.^ 

'  E^  idence   of   a   custom   of   the  sonable,  certain  and  kno-svn  to  its 

London    Stock    Exchange    that    a  members.     Wildy   vs.   Stephenson, 

Broker,  not  disclosing  the  name  of  1  C.  &  E.  3. 

his  principal,  is  personally  liable,  See  Title  "Custom"  in  Ency.  of 
being  conflicting,  the  jury  was  un-  the  Laws  of  England,  vol.  4;  Rob- 
able  to  agree  ;  s  to  its  existence,  inson  vs.  X.  Y.  and  Texas  S.  S.  Co., 
The  court  charged  that  the  custom  75  App.  Div.  (\.  Y.)  431;  Blake- 
to  be  binding  should  be  a  universal  more  vs.  Heyman,  6  Fed.  Rep. 
usage  of  the  Stock  Exchange,  rea-  58L 


General  Rules  relative  to  Usaares. 


411 


There  are  different  kinds  of  customs,  such  as  the  custom 
of  merchants,  lex  mercatoria,  which  is  recognized  by  the 
law  of  the  land;  but  the  "usages"  of  which  we  treat  in 
this  chapter  must  be  proved  as  any  other  facts,  and,  when 
proved,  may  be  used  as  presumptive  evidence  to  establish 
the  contract.'  Mr.  Justice  Brett,  in  a  case*  which  power- 
fully illustrates  the  connection  between  the  usages  of  trade 
and  the  law,    said  :     "'  Customs  of  trade,  as  distinguished 


'  Starkie  on  Ev.  455;  Maxted  vs. 
Paine,  L.  R.  4  Ex.  81;  id.  (2d  case) 
205;  2  Phillips  on  Ev.  (Cowen's, 
Hill's,  and  Edward's  notes,  4th  Am. 
ed.)  726;  2  Pars,  on  Cont.  (Sth  ed.) 
535;  1  Greenleaf  on  Ev.  §  292,  294; 
Starkie  on  Ev.  637,  710;  Broom's 
Leji  Max.  7th  ed.  705  et  seq.;  Walls 
vs.  Bailey,  49  X.  Y.  464.  See  also 
Lawson  on  Usape-,  2S7,  2S8,  where 
the  law  on  this  subject  is  exhaus- 
tively discussed. 

It  has  been  recently  decided  in 
England  that  a  usage  as  to  the  ne- 
gotiability of  bearer  bonds,  has  been 
so  often  proved,  that  it  must  be  now 
noticed  by  the  courts  judicially  and 
this  although  the  iisage  luus  been  of 
recent  origin.  Edelstein  vs.  Schu- 
ler,  71  L.  J.  K.  B.  572.  And  sec 
observations  of  the  court  as  to 
judicially  noticing  the  custom  of 
calling  of  "margins.'"  Hill  vs. 
Morris,  21  Mo.  Ap[).  250. 

See  also  Cole  vs.  Skruinka,  37  Mo. 
App.  427;  Thomas  vs.  Hooker  Col- 
ville  Steam  Pump  Co.,2.S  Mo  App. 
563  (trade  u.sagf«  need  not  be  an- 
cient, if  sufTicif-ntlv  known).  .\h  to 
evidence  which  wa.s  he-id  iiisufricient 
to  support  an  allege*!  trade  usage  nf 
the  New  York  cofTee  market  t<i  hcII 
one   kind  of  cofTcc  as   anoth'-r   -••«• 


O'Donoghoe  vs.  Leggett,  134  N.  Y. 
40.  A  custom  of  mining  Stock- 
brokers to  charge  an  arbitrary 
sum  for  telegrams  was  not  shown 
to  be  well  establishetl,  certain  and 
uniform  and  known  to  both  par- 
ties. Marye  vs.  Strouse,  5  Fed. 
Rep.  4S7. 

Particular  trade  usages  or  cus- 
toms, however  extensive  they  may 
be,  must  be  proven.  And  therefore 
an  alleged  usage  of  Brokers  to  re- 
quire a  lender  of  stock,  borrowed  to 
cover  a  short  sale,  to  put  up  mar- 
gins to  secure  the  seller  against  the 
decline  of  the  stock,  is  not  proved 
by  the  mere  opinion  of  the  seller, 
and  of  his  secretary,  that  such  a 
usage  existed.  Morris  vs.  Jamieson, 
68  N.  E.  Rep.  747.  See  also  \Va)igh 
vs.  Seaboard  Bank,  54  \.  Y.  Super. 
Ct.  (22  Jones  fc  S.)  2.S3;  Weld  vs. 
Barker,  153  Pu.  St.  41)5;  'iO  Atl. 
Rep.  230;  The  Innocenta,  10  Ben. 
(U.  S.)  410;  Blake  vs  Stump.  73 
Md.  100;  Overman  vs.  Hoboken 
City  Bank,  M)  N.  J.  L.  61;  C.re«>ley 
vs.  Doraii  Wriirlit  Co  ,  MS  .Miuhh. 
116;  Kershaw  vs.  Wright,  15Miwn. 
301 

'  Rol.iiiHon  vs  Mollift,  L.  R.  7 
H.  L.  Eng.  A-  I  \\<\>  Ciw.  80'2. 
KIO. 


412  Stoek-biokors  and  Stock  Exchanges. 

from  other  customs,  are  generally  courses  of  business  in 
vented  t)r  relied  upon  in  order  to  motlify  or  evade  some  ap- 
plication which  has  been  laid  down  by  the  courts  of  some 
rule  of  law  to  business,  and  which  application  has  seemed 
irksome  to  some  merchants.  And,  when  some  such  course 
of  business  is  proved  to  exist  in  fact,  and  the  binding  effect 
of  it  is  disputed,  the  question  of  law  seems  to  be  whether  it 
is  in  accordance  with  fundiunental  principles  of  right  and 
wrong.  The  mercantile  custojn  is  hardly  ever  invoked  but 
when  one  of  the  parties  to  the  dispute  has  not,  in  fact,  had 
his  attention  called  to  the  course  of  business  to  be  enfcii'ced 
by  it;  for  if  his  attention  had,  in  fact,  been  called  to  such 
course  of  business,  his  contract  would  be  specifically  made 
in  accordance  with  it,  and  no  proof  of  it  as  a  custom  would 
be  necessary.  A  stranger  to  a  locality  or  trade  or  market 
is  not  held  to  be  bound  by  the  custom  of  such  locality,  trade, 
or  market  because  he  knows  the  custom,  but  because  he 
has  elected  to  enter  into  transactions  in  a  locality,  trade,  or 
market  wherein  all  who  are  not  strangers  do  know  and  act 
upon  such  custom.  Where  considerable  numbei's  of  men  of 
business  carry  on  one  side  of  a  particular  business,  they  are 
apt  to  set  up  a  custom  which  acts  very  much  in  favor  of 
their  side  of  the  business.  So  long  as  they  do  not  infringe 
some  fundamental  principle  of  right  and  wrong,  they  may 
establish  such  a  custom  ;  but  if,  on  dispute  before  a  legal 
forum,  it  is  found  that  they  are  endeavoring  to  enforce 
some  rule  of  conduct  which  is  so  entirely  in  favor  of  their 
side  that  it  is  fundamentally  unjust  to  the  other  side,  the 
courts  have  always  determined  that  such  a  custom,  if 
sought  to  be  enforced  against  a  person  in  fact  ignorant 
of  it,  is  unreasonable,  contrary  to  law,  and  void.'" 

'  See  Hamilton  vs.  Young,  7  L.  R.  I.  289,  in  which  the  court  after 


General  Rules  relative  to  Usages.  413 

It  will  be  the  object  of  the  present  chapter  to  ascertain 
how  far  these  general  views  and  the  principles  hereafter  set 
forth  have  been  introduced  into  cases  ai-ising  out  of  transac- 
tions between  Stock- broke i-s  and  their  Clients  ;  and  it  will  be 
seen,  in  the  application  of  these  general  principles  to  the 
facts,  that  the  courts  have  exercised  a  very  wide  range  of 
discretion,  and  that  their  conclusions  have  not  by  any  means 
been  uniform  or  harmonious. 

The  importance  of  allowing  the  introduction  of  usages  of 
Stock-brokers  in  all  cases  arising  out  of  transactions  on  the 
Stock  Exchange  cannot  be  overestimated.  The  business  of 
buying  and  selling  stocks,  although  of  modern  origin,  has 
grown  to  be  one  of  gigantic  magnitude,  em})loying  yearly 
more  capital,  perhaps,  than  any  other  commercial  pursuit. 

As  the  system  of  conducting  a  transaction  in  stocks  is  ^mi 
generis^  the  usages  of  the  business  have  generally  arisen  out 
of  its  necessities,  and  to  fail  to  give  effect  to  them  in  a  litiga- 
tion is  practically  to  determine  it  upon  principles  and  facts 
which  have  no  existence  in  the  original  transaction.  In 
truth,  it  is  entirely  impossible  to  make  out  or  understand 
intelligently  an  ordinary  transaction,  either  of  the  London 
or  the  Xew  York  Stock  Exchange,  without  the  aiil  of  those 
usages.  The  time  required  to  make  a  sale  of  securities  at 
either  of  these  places  is  but  momentary.  It  often  happens 
that  Ijarely  a  half-<lozen  words  are  spoken  in  a  tiansaction  : 
a  nod,  the  raising  of  a  hand,  or  other  signs  arid  ejaculations*, 
are  fn;quently  u.sed  to  Ijind  a  buyer  or  .seller  to  a  contract 
einbracini:  thousands  of  shares  of  securities.  One  transac- 
tion  is  the  representative  <»f  thousands.  \'ery  often  the 
Hrok'TS  mak«;    no  nieiiioratidiiiii   of  the;  imsiness,  or,  when 

quotiiiK  the  lant  two  KciiUMircM  nf    with  "thw  lucid  cxiHinitiori  of  tlio 
the  above  cxtraft,  ••oiicurM  «'iitirHy    law." 


414  Stock-brokers  and  Stock  Exchanges. 

one  is  made,  it  is  apt  to  be  of  the  scantiest  character  and 
utterly  decij)herless  without  the  exphination  of  persons  ac- 
quainted with  the  course  of  dealing  on  the  Exchange. 
What  actually  transpires  between  the  buying  and  selling 
Brokers  constitutes,  it  may  be,  but  the  framework  of  the 
transaction,  and  an  intelligible,  full,  living  agreement  can 
only  be  made  out  by  a  resort  to  other  evidence,  involving, 
perhaps,  not  only  a  consideration  of  the  rules  of  the  Stock 
Exchange,  but  of  the  unwritten  usages,  so  to  speak,  of  the 
Brokers. 

With  these  preliminary  observations,  we  shall  proceed  to 
state  certain  general  rales  which  liave  been  established  by 
the  courts  upon  the  doctrine  of  usage,  together  with  such 
criticisms  upon  them  as  seem  reasonable  and  appropriate. 

First.  It  may  be  laid  down  as  a  proposition  well  settled 
in  the  law  that  the  usage  of  a  business  is  never  permitted  to 
make  an  entire  or  neio  contract  for  the  parties.  AVhat  usage 
does  is  to  take  a  contract  which  is  deficient  and  incomplete 
in  its  terms  or  expressions,  and  supply  the  omissions  ;  and, 
unless  some  contract  is  shown,  evidence  of  usage  or  custom 
is  immaterial.^ 

When  therefore  a  proposed  amended  complaint  sought  to 
base  a  contract  liability  wholly  upon  an  alleged  usage 
amongst  London  bond-dealers  to  protect  their  customer's 
interests,  and  to  expend  money  in  their  behalf,  which  money 
was  refunded  by  the  customers,  a  motion  to  serve  the  com- 
plaint as  so  amended  w^as  denied.'^ 

'  Tilley  vs.  County  of  Cook,  103  627;  20  N.  Y.  Supp.  771.  Usages 
U.  S.  Rep.  155;  Lombardo  vs.  Case,  of  Brokers  may  explain,  but  not 
30  How.  Pr.  (N.  Y  )  117;  Parsons  vs.  prove,  a  contract.  Goddard  vs. 
Martin,  77  Mass  111 ;  Smith  vs.  Bar-  Garner,  109  Ala.  98. 
ringer,  37  Minn.  94;  33  X.  W.  Rep.  ^  Municipal  Inv.Co.  vs.  Industrial 
116;    Dobson  vs.  Kuhula,  66  Hun,    &  Gen.  Trust  Co.,  89  Fed  Rep.  254. 


General  Rules  relative  to  Usages.  415 

Second.  So  the  usage  of  a  business  plays  an  important 
part  in  the  interpretation  of  technical  words  and  plirases  in 
a  contract,  because,  if  language  is  employed  which  is  only 
known  in  a  certain  business,  the  law,  to  enlighten  itself  as  to 
what  is  meant  by  the  contract  between  the  parties,  invites 
individuals  skilled  in  that  business  to  explain  or  unlock  the 
meaning  of  the  terms  used.  This  branch  of  the  law  is  also 
comparatively  uniform  and  clear.^ 

Third.  Another  rule  is  also  "well  settled — viz.,  that  a  writ- 
ten and  express  contract  cannot  be  contradicted  or  varied  by 
usage,  i.  e.,  where  the  terms  of  a  contract  are  full  and  com- 
plete and  can  be  deciphered  by  the  courts  without  resort  to 
extrinsic  evidence ;  as  where  A,  of  New  York,  agrees  to 
sell  B,  of  the  same  place,  ten  barrels  of  flour,  each  barrel  to 
weigh  one  hundred  pounds :  here  an  offer  to  show  that  the 
ordinary  barrels  of  flour  known  among  the  flour  trade  of 


'  WTien  a  customer  buys  bonds  A   "certification"   of   a  transfer 

and  does  not  pay  for  them,  and  the  means  that  if  the  seller's  certificate 

holders    of  the  bonds  "continue"  includes  more  shares  than  he  sells, 

them,  it  was  held  that  "continue"  he  does  not  deliver  it  to  the  buyer, 

was  a  technical  term  of  the  London  but    an    officer    of    the    company, 

Stock  Exchanf;e  and  meant  a  sale  whose  shares  are  being  sold,  or  an 

and   an   agreement   to   repurcluuse.  olfi<-er    of    the    Stock     Exchange, 

Bongiovanni   vs.   Soci(''t<5  G^'n<?ralc,  writes  on  the  transfer  "Certificate 

54   L.   T.   320.     This   dcciHi(jn   wjis  produced"  and  buyers  and  Hrokcrs 

followed  in  In  re  Overweg;  iia;is  vs.  act  on  this  jis  if  the  original  certifi- 

Durant,  69  L.  J.   Ch.  255,  where  a  cale    were    prothice*!.      IMshop    vs. 

Broker  who,  on  hLs  Client's  «ieath,  Halkia  Co.,  25  Q    R.  I).  512      Thist 

haa  "continued"  in.stead  of  selling,  "certification"    docs    not    warrant 

was  held  lialjle  to  his  client  as  if  title,  and  does  not  estop  a  company 

there  had  been  an  iinme<liate  sale  at  from  donyini:  pl.iintifT's  title  when 

the  price  on  the  carrving  over  day.  the  transfer  to  liis  vendor  w«w  in- 

Sce  aliio  Ik'Htinck  VK.  London  Joint-  valid.     II). 

Stock  Hank  nK9.3).  2  Ch,  120.  and  A   "friendly   loan"   is  a  loan  of 

the   early    Knclish    rjii*es   of   In    re  money  or  stocks  for  l)usini>ss  pur- 

DcnniMon,    .'{   Ve«.   552:   Andn-   vs.  poms.     Slieppard    vs     Marrctt,     J2 

CrawfoH,  1  Hr   P.  C  .'WO.  Leg.  Int.  (I'u.)  110. 


416 


Stock-brokers  and  Stock  Exchanges. 


'New  York  weigh  only  ninety  pounds  could  not  be  received. 
So  that  evidence  of  usage  is  generally  receivable  only  in 
cases  where  the  contract,  whether  written  or  oral,  is  doubt- 
ful, incomplete,  or  deficient,  or  where  technical  terms  or 
phrases  are  to  be  translated.' 

Fourth.  A  statement  is  frequently  met  with  in  the  ele- 
mentary treatises  and  in  adjudicated  cases,  that  usage,  when 
it  is  not  in  opposition  to- "  fixed  rules  of  law,"  and  is  not 
unreasonable,  is  deemed  to  form  a  part  of  the  contract,  and 
to  enter  into  the  intentions  of  the  parties  thereto.^     AVhat 


'  When  a  Stock-broker  sold  certain 
shares  of  stock  to  his  customer, 
representing  that  he  would  dehvor 
the  same,  evidence  of  a  custom 
amongst  Stock-brokers  to  purchase 
stock  in  their  own  name  and  to  be- 
come personally  liable  on  the  con- 
tract is  inadmissible,  when  the 
Broker  in  fact  had  no  such  shares. 
Wolf  vs.  CampbeU,  110  Mo.  114, 
and  cases  cited.  See  also  Municipal 
Investment  Co.  vs.  Industrial  & 
General  Trust  Co.,  Ltd.,  89  Fed. 
Rep.  254. 

A  contract  by  a  Broker  to  sell 
bonds  and  "past  due"  interest, 
means,  so  far  as  regards  interest, 
such  interest  as  has  matured,  and  is 
collectible  on  demand,  and  does  not 
include  current  interest,  to  the  date 
of  sale,  not  yet  due,  and  evidence  of 
a  custom  of  Brokers  and  bankers  in 
St.  Louis  that  "past  due"  interest 
included  current  interest  to  the  time 
of  sale,  was  properly  excluded,  as 
the  meaning  of  the  contract  was 
clear.  Coquard  vs.  Bank  of  Kansas 
City,  12  Mo.  App.  261.  See  Cook 
on  Corporations,  5th  ed.  §  453,  and 
cases   cited.    See   also  Transconti- 


nental Co.  vs.  Hilmers.  20  Fed.  Rep. 
717;  German  Savings  Bank  vs. 
Renshaw,  28  Atl.  281;  Gilbert  vs. 
McGinnis,  114  111.  28;  O'Donohue 
vs.  Leggett,  134  N.  Y.  40;  Hecht 
vs.  Ratcheller,  147  Mass.  335;  Silber- 
man  vs.  Clark,  96  N.  Y.  522;  Bigelow 
vs.  Legg,  102  X.  Y.  652;  Connell 
vs.  Averill,  8  App.  Div.  (X.  Y.)  528; 
Gibney  vs.  Curtis,  61  Md.  192.  And 
the  cases  cited  in  Danforth's  Index- 
Digest  to  Xew  York  Supreme  Court- 
cases  under  title,  "Custom  and 
Usage,"  p.  565.  See  also  Hopper 
vs.  Sage,  112  N.  Y.  535,  and  cases 
cited. 

'Starkie  on  Ev.  637,  710;  WU- 
liams  vs.  Gulinan,  3  Greenl.  276; 
Walls  vs.  BaUey,  49  X.  Y.  464. 
Hopper  vs.  Sage,  112  X.  Y.  535 
(seller  of  stock  entitled  to  dividend 
declared  at  sale  but  payable  there- 
after, although  by  the  usage  of  the 
Stock  Exchange  the  buyer  would  be 
entitled) .  See  also  Ashner  vs.  Aben- 
heim,  19  App.  Div.  (X.  Y.)  287,  and 
cases  cited;  Britton  vs.  Ferrin,  171 
N.  Y.  235;  Municipal  Inv.  Co.  vs. 
Industrial  &  Gen.  Trust  Co.,  89 
Fed.  Rep.  254 ;  Gilbert  vs.  McGinnis, 


Geueral  Kules  relative  to  Usages.  417 

is  the  meaning,  in  this  connection,  of  the  phrase  "  fixed 
rules  of  law  { "'  If  by  such  expression  it  is  meant  that  all 
usages  of  business  contrary  to  the  express  prohibitions  of 
statutes  are  void,  the  proposition  can  perhaps  be  easily 
sustained ;  for  no  usage  can,  or  should,  have  the  force  and 
effect  of  a  legislative  enactment.  And  for  the  same  reason 
contracts,  either  express  or  implied,  are  void  if  they  conflict 
with  similar  statutes.  But  there  are  a  great  many  con- 
tracts contrary  to  the  ''fixed  rules  of  law"  which  are  valid, 
and  which  are  made  for  the  express  purpose  of  evading  or 
avoiding  the  rules  of  the  law.  For  instance,  it  seems  to  be 
well  settled  in  the  State  of  Xew  York  that  where  A  ple<lges 
stock  or  securities  for  the  payment  of  a  loan,  so  that  a 
pledge  is  created,  B,  before  he  can  sell  the  same,  must 
demand  payment,  and,  upon  default,  give  A  reasonable 
notice  of  time  and  place  of  sale.'  This  j)rinciplc  seems  to 
be  a  "  fixed  rule  of  law  ; "  in  fact,  all  the  princij)les  of  law 
are  "  fixed  rules.''  The  fundamental  essence  of  a  law  is  its 
fixity.  Law  is  a  rule,  to  distinguish  it  from  advice  or 
counsel,  which  one  is  at  liberty  to  follow  or  not  as  he  sees 
proper  ;  it  is  also  a  rule,  to  distinguish  it  fi'om  a  compart  or 
agreement,  the  latter  being  nothing  but  a  promise  proceetl- 
ing  from  us,  whereas  the  law  is  a  command  directed  to  us: 
its  language  is,  "  Thou  siialt  or  siialt  not  do  this?.''*  But 
this  rule,  in  relation  to  a  pledge,  may  be  waived  In*  the 
pledgor,  so  that  the  ])ledgee  may  sell  without  notice.  The 
former  can  make  a  contract  In'  which  he  agrees  to  allow  B, 
in  default  of  payment,  to  sell  the  stocks  without  notice  of 

111  111.  28;  Geyser-Marion  Gold  '  .Miirkhiiin  vh  Jnudoii,  il  NY. 
Mining'  Co.  vs.  Stark,  .W  L.  K.  .\.    23.''). 

684.  '  IMarkntoiie'H  Com   (SlmrHWood'i 

ed.)  ♦  45. 

27 


418  Stock-brokers  and  Stock  Exchanges. 

any  kind,  at  any  place,  and  such  a  waiver  is  entirely  legal.' 
Here  we  lind  a  "  (Ixed  rule  of  law  "  set  aside  at  the  option 
of  the  parties  to  an  agreement.  Can  A,  by  an  implied  con- 
tract, do  that  which  he  can  do  by  an  express  contract  ?  It 
is  just  here  that  the  difficulty  arises  in  the  application  of 
the  doctrine  of  usage  to  contracts.  For  if  a  usage  exist  in 
a  certain  locality,  or  among  a  certain  class  of  merchants  or 
traders,  which  does  not  conflict  with  tlie  prohibitions  of  a 
statute,  or  which  is  not  contra  lonos  inores,  or  contrary  to 
public  policy,  but  which  merely  extends  or  limits  a  principle 
of  commercial  law,  or  a  "  fixed  rule  of  law,"  and  parties 
contract  with  a  knowledge  of  the  usage,  why  should  it  not 
be  presumed  that  it  entered  into  their  intentions,  and  that 
they  have  made  it  a  part  of  their  contract  to  the  same 
extent  as  if  they  had  specifically  embodied  it  in  the  instru- 
ment ? 

In  Markliam  vs.  Jaudon  ^  evidence  was  offered  to  prove 
the  existence  of  a  usage  in  the  city  of  New  York  by  which 
Brokers  have  the  right  to  sell  out  the  Client's  stock  on  the 
exhaustion  of  the  margin,  without  notice  to  the  latter.  The 
ajjpellate  court  held  that  such  evidence  was  legally  rejected 
upon  the  ground  that  it  ^vas  in  hostility  of  the  terms  of  the 
contract?    If  it  were  so,  unquestionably  the  usage  should 

'  Markham  vs.  Jaudon,  supra.  agreement   entitling   the  Broker  to 

^  41  N.  Y.  245.  sell  without  notice. 
'InCovell  vs.  Loud,  135Mass.41,        It   was    held    by  the  New  York 

this  usage  was  held  illegal  by  the  Court  of  Appeals  in  1886  that  evi- 

trial  court,  and  the  Client  held  en-  dence  could  not  be  admitted  of  a 

titled  to  recover  the  value  of  the  custom  of  Brokers   and  dealers  in 

stock  from  the  Broker,  but  on  ap-  wool,   to  consider  a  sales  note  of 

peal  this  decision  was  reversed  on  wool  a  mere  memorandum,  amount- 

the  ground  that  the  contract  rela-  ing  to  a  proposition  which  might  be 

tion  was  not  that  of  pledgor  and  accepted  or  rejected  by  either  side, 

pledgee  but   merely  an   executor}^  and,  until  rejected  or  accepted  by 


General  Rules  relative  to  Usa£?es.  419 

have  succumbed  to  the  plain  agreement  of  the  parties.  But 
there  was  no  written  contract  in  the  case,  ami  the  con- 
chision  was  based  upon  the  general  pi-inciples  of  the  law- 
relating  to  the  subject  of  pledges. 

Ordinarily,  of  course,  where  persons  do  not  specifically 
agree  upon  the  terms  of  a  contract,  the  presumption  is  that 
they  contract  with  reference  to  the  existing  law,  and  the  con- 
tract will  be  enforced  according  to  prevailing  principles  ;  but 
where  a  usage  exists  with  reference  to  which  parties  are  as- 
sumed to  contract,  why  should  not  this  usage  be  imported 
into  the  contract,  with  the  result  of  varying  the  "  fixed  rules 
of  law,"  to  the  same  extent  as  if  an  express  understanding 
had  been  entered  into  ? 

In  the  case  in  question  it  was  not  disputed  but  that  the 
Client  could  have  waived  his  right  to  demand  notice.  Did 
he  not,  by  entering  into  a  transaction  with  a  Stock-broker, 
adopt  as  part  <jf  the  business  the  usages  which  [)revail 
among  Brokers,  respecting  the  sale  of  securities  huld  under 
the  circumstances  thei-e  disclosed  i  There  were  two  tlissent- 
ing  opinions  in  that  case,'  which  held  that  such  evidence 
was  admissible,  on  the  ground  that  it  explained  a  doubtful 
contract.     And  it  has  been  directly  decided  in  England  that 


hotli,  mip;ht  be  left  open,  when  tlie  is  inadmissible.     Cooper  vs    Saiul- 

rontract  fontained  in  the  sales  note  ford,   1  Yer.  •l.'i'j. 

was  a  bindin;;  one.     When  it  wjls  of  .\nd   a   ciistoin   of    I'rodtu'e   Ii.\- 

such   a   character,    no   usaj^e  could  chan;;e  HrokerH  to  cancel  <'ontract.s, 

control  the  rule  of  law  applicable  to  without    their   principiUs   licing    in 

its  construction.      Hineiow  vs.  Lejy;,  some  effective  way  Hubstitute<l,  be- 

102X.Y.  652;  0  N.IO.  Uei).  107.     .V  inn    ••ontrary    t(.   cstabli.sh.-il    le^'id 

custom  of  commission  mcrcliants  in  priticipl<*s,    is   not   bindint;   on    the 

.\ew  Orleans  to  charge  more  than  principal,    even    with     his    juwt«nt. 

the  le^al  rate  of  interest,  Ijciny  ••on-  Kent  vs.  Woodhull,  .'».'•  N.  Y.  Super, 

trary  to  law,  parol  evidence  thereof  ("t.  311. 

'  Grover  and  Woodruff,  J  J. 


420  Stock-brokers  and  Stock  Exchanges. 

a  usage  of  the  Stock  Exchange  to  close  an  account  before 
the  account-dav,  whore  the  Client  becomes  insolvent,  should 
be  upheld  as  a  reasonable  and  just  usage ; '  although  it  must 
be  confessed  that  this  case  is  weakened  by  the  intimations 
of  the  court  that,  if  the  .account  is  suiiiinarily  closed  before 
theaccounl-(hiy,  the  Ilroker  is  liable  to  indemnify  the  Client 
if  the  market  changes  in  favor  of  the  latter  on  the  last- 
named  day.^  As  we  have  said,  a  fixed  principle  or  rule  of 
law  may  be  expressly  waived.  So,  even  in  cases  Avhere  the 
legislature  has  i-egnlated  the  law  of  a  certain  subject  by 
statute,  parties  may  contract  to  avoid  its  effect,  and  such 
contracts  are  perfectly  legal.  Many  statutory  provisions 
are  merely  declaratory  of  the  common  law,  and  are  made 
to  govern  cases  \vhere  parties  have  not  entered  into  any 
agreement  in  reference  thereto. 

For  instance,  if  an  act  of  the  legislature  of  a  state  specif- 
ically allows  three  days'  grace  on  negotiable  instruments 
(and  we  use  this  illustration  because  it  is  made  in  the  case 
in  Markham  vs.  Jaudon''  by  the  learned  judge  who  de- 
livered the  opinion  of  the  court),  a  promissory  note  which 
should,  on  its  face,  state  that  it  was  to  be  without  days  of 
grace  would  be  perfectly  valid,  because  the  party  had  chosen 
to  waive  the  benefits  of  the  existing  law.  And  if  there 
exist  a  known  usage  among  the  merchants  of  a  certain  place 
to  allow  no  days  of  grace,  would  not  such  a  usage  bind  a 
person  who  executed  a  note  and  made  it  payable  at  such 
place  ?     Would  he  not  be  presumed  to  have  made  the  in- 


'  Lacey    vs.    Hill    (Scrimgeour's  ^  But    see    Colket    vs.    Ellis,    10 

Claim),  L.  R.  8  Ch.  .\pp.  921.     See  PhUa.  (Pa.)  375;  s.  c.  32  Leg.  Int. 

Ellis  vs.  Pond,  67  L.J.  Q.  B.345;  (Pa.)  82;  Corbett  vs.  Underwood,  83 

Michael  vs.  Hart,  70  L.  J.  K.  B.  111.  324. 

1000.  '  41  N.  Y.  235. 


General  Rules  relative  to  Lsages.  421 

strument  with  express  reference  to  such  usage  {  The  courts 
of  Pennsylvania  and  California  say  that  he  would.' 

So  a  custom  on  the  })art  of  all  the  banks  of  a  particular 
place  to  demand  payment  and  give  notice  to  endorsers  of 
negotiable  paper  on  XXxafourtlc  day  of  grace  is  binding  on 
an  endorser  if  known  to  him.^  And  the  reasoning  of  the 
Supreme  Court  of  the  United  States  shows  the  fallacy  of 
the  argument  used  in  the  case  of  Markham  vs.  Jaudon  to 
reject  the  usage  there  sought  to  be  upheld.  And  the  gen- 
eral principles  of  law  relating  to  the  time  and  place  of  de- 
mand and  notice  in  the  case  of  notes  and  bills  may  be 
overruled  by  usage.^ 

The  Supreme  Court  of  the  United  States,  in  Barnard  vs. 
Kellogg/  decided  a  question  which  strongly  illustrates  the 
general  subject.  There  it  was  held  that  the  well-known 
rule  of  caveat  emptor  cowVX  not  be  affected  by  a  local  custom 
by  which  the  seller  was  made  to  warrant  the  quality  of  the 
goods;  but  the  learned  judge  who  delivered  the  judgment 
of  the  court,  in  concluding  his  opinion,  laid  great  stress  upon 
the  fact  that  it  appeared  the  parties  had  no  knowUdge  of 
the  custom  invoked. 

A  still  further  and  more  ambiguous  limitation  of  the 
doctrine  of  usages,  in  tiieir  influence  ui)on  contracts,  was 
made  by  Mr.  Justice  lirett,  in  the  case  of  liobinson  vs.  Mol- 
lett,'  where  he  said  :  "  So  long  as  they  do  not  infringe  some 

'  Lawson   vs.   Richards,  0   I'liilji.  Bowen  vh.   Newoll,   \  Sold.   190;  3 

(Pa.)  179;  Chuini)ioii  vh.  Gordcm,  70  Kcrii.  290,  wluTc  tin-  UHani*  of  the 

Pa.  St.   170;  .Minium  v.s.  Fi.slicr,    1  l)arik.M    of    C'oiiiu'ctifMit,    to    roRard 

Cal.   3.'>.  chcck.s    jmyal^h'   afti-r  dato   iw   not 

'  Ufiiiuer  VH.  Hank  of  Columbia,  9  entitlod  to  davH  of  v.Ti\cc,  wait  held 

Wheat.   .'>.S2.  adiniHuihlc. 

•  Sec  article;  'The  Power  ■  f  TnaKe        «  10  Wall.  :W3. 
and  Custom,"  !)>' John  I).  I.awMon,        '  L.  H.  7  H   I,  KuK  iV  I  App  Cim. 

Vsr\.,  7  South    L.  Ucv.  13;  Hce  oluo  802,  810;  sec  obo  Tillpy  vh  County 


422  Stook-l)rokors  and  Stock  Kxchaiises. 

fundamental  j)nnciple  of  right  and  wrong,  they  may  estab- 
lish such  a  custom,"  but  that  "  customs  fundamently  unjust, 
if  sought  to  be  enforced  against  persons  ignorant  of  them, 
are  void." 

In  that  case  a  usage  was  attempted  to  be  introduced  which 
allowed  a  P>roker,  commissioned  to  ]iurchase  certain  mer- 
chandise for  his  jirincipal,  to  become  himself  the  purchaser. 
The  order  to  purchase  was  given  by  a  Liverpool  merchant 
to  a  London  tallow-broker,  and  the  usage  pertained  to  the 
London  tallow  market ;  but  the  principal  was  not  shown  to 
have  had  an}^  knowledge  of  the  usage ;  and  upon  the  ground 
of  the  principal's  ignorance  of  the  same  it  was  rejected.  The 
learned  judges  who  delivered  opinions  in  the  case  did  not 
pass  upon  the  question  as  to  the  influence  of  such  a  usage 
upon  a  contract  made  by  persons  liaving  knowledge  thereof ; 
but  it  is  not  difficult  to  perceive  that,  if  such  knowledge  had 
been  shown,  the  case  would  have  been  differently  deter- 
mined.' 

"Without  pursuing  the  subject  further,  it  seems  to  us  that 
harmony  can  only  be  reached  in  this  branch  of  the  law  by 
keeping  in  constant  view  the  distinction  between  contracts 
void  in  law  and  those  which  are  valid. 

In  the  former  class,  whether  the  contracts  are  void  be- 
cause made  so  by  statute,  or  are  against  public  policy,  the 
law  will  not  enforce  them.     In  the  latter  class,  embracing 

of  Cook,  103  U.  S.  Rep.  161,  where  jected,  on  the  ground  that  it  worked 
the  coxirt  say  that  absurd  and  unrea-  a  complete  change  in  the  nature  of 
ftonable  customs  are  not  binding.  the  principal's  rights  and  obliga- 
'  The  case  of  Robinson  vs.  Mollet,  tions,  and  such  change  could  not  be 
supra,  was  followed  in  Irwin  vs.  made  without  his  assent,  which 
Williar,  110  U.  S.  499,  where  proof  could  be  only  implied  from  knowl- 
of  a  similar  custom  amongst  Balti-  edge  of  the  custom.  See  also  Ham- 
more  commission  merchants  was  re-  ilton  vs.  Young,  L.  R.  7  Ir.  289. 


General  Rules  relative  to  Usages.  423 

all  contracts  not  included  in  the  former,  agreements  will  be 
enforced,  although  thev  contravene  fixed  rules  of  the  law 
merchant,  or  common  law,  and  frequently  statutory  pro- 
visions. 

As  usage  is  considered  a  portion  of  the  contract  between 
the  parties,  it  would  seem  to  follow  logically  that  it  should 
be  sustained  in  every  instance  where  an  express  contract  is 
upheld,  providing,  of  coarse,  the  evidence  is  sufficient  to 
show  that  the  parties  had  knowledge  of  such  usage. 

In  fine,  whenever  an  express  contract  is  valid,  a  known 
usage,  which  is  but  another  way  of  proving  what  the  parties 
intended  and  agreed  upon,  should  be  declared  equally  so.^ 
There  is  one  answer  which  may  be  made  to  this  conclusion 
— viz.,  that  "public  policy''  requires,  where  parties  assume 
obligations  which  the  law  does  not  impose,  or  release  obliga- 
tions which  it  does  impose,  it  should  be  done  by  express 
contract. 

This  view  was  advanced  by  Chapman,  J.,  in  a  case  where  a 
usage  was  set  up  that  certain  goods  were  always  sold  with  a 
warranty,  where  the  law  implied  none.'^  The  learned  judge 
said  :  "...  If  the  parties  agree  that  there  shall  bo  a  war- 
I'aiity  where  the  law  implies  none,  they  can  insert  the  war- 
ranty in  the  ijill  of  sale;  oi-  if  the  manufacturer  sells  with- 
<jut  warranty,  he  can  so  express  it.  IJut  if  such  usages  were 
to  prevail,  tliey  would  be  productive  of  misunderstanding, 
litigation,  and  frequent  injustice,  and  would  bo  dee|)ly  in- 
jurious to  the  interests  of  trade  and  commerce.  They  would 
make  it  necessary  to  pn^ve  the  law  of  the  case  by  witnesses 

'  These    viewH,    .since    thoy    were  Lawson,  riscj.,  of  the  Missouri  Hnr, 

written,   have   received   a  powerful  7  Soutli.  L.  Uev.  (ii.  h.)  1  ;  (>  id   SITi; 

etid«)rscmetit    from    two    elal)orate  see  uIho  Colkot  vs.  Kills,   10  Phihi. 

and  al»le  articU-H  mx  the  "Power  of  fPa  )  H7.'»;  s  c.  \\1  I-ei;.  Int.  (Pa.)  S2. 

Usane   and   Cu.stoni,"  by   John    I)  '  l)i(kinst)n  vs.  Gray,  SU  Mass.  29. 


424  Stock-brokers  and  Stock  Exchaiises. 

on  the  stanil,  and  it  would  be  settled  by  the  jury  in  each 
particular  case  ; "  and  he  concludes  that  "  public  policy  "  re- 
quires that  such  usages  should  be  expressly  incorporated  in 
contracts. 

The  exclusion  of  usage  on  the  ground  of  "  ])ublic  pol- 
icy" invokes  an  argument  which  wo  have  not  discovered 
in  many  cases  ;  and,  if  it  were  well-founded,  it  would  re- 
quire the  rejection  of  all  usages,  because  it  Avould  apply  to 
all  with  the  same  force  that  it  did  to  the  one  set  up  in  the 
case  in  question.  And  this  mere  statement  would  seem  to 
be  all  the  answer  which  such  an  argument  requires.  There 
is  another  complete  answer,  however — viz.,  that  a  large  num- 
ber of  the  many  contracts  which  come  before  the  courts  are 
proved  by  parol ;  and  there  is  no  more  practical  difficulty  in 
proving  usages,  which  are  but  portions  of  contracts,  than 
there  is  in  proving  any  other  terms  or  stipulations  expressly 
agreed  upon  by  the  verbal  utterances  of  parties. 

Fifth.  The  rule  has  been  established,  in  a  large  number 
of  cases,  that  where  one  employs  a  Broker  he  is  presumed 
to  auth(jrize  him  to  deal  with  reference  to  the  custom  of 
Brokers ;  and  that  a  Stock-broker,  in  the  execution  of  his 
orders,  has  an  implied  authority  to  follow  the  rules  and 
usaofes  of  the  Stock  Exchange.^ 

»  Sutton  vs.  Tatham,  10  Ad.  &  E.  Russell,  29  L.  J.  Q.  B.  279;  Lacey 

27;  Pollock  vs.  Stables,  12  Q.B.  765;  vs.  Hill,  L.  R.  8  Ch.  App.  921 ;  Coles 

Mitchell  v.s.  Newhall,  15  M.  &  W.  vs.  Bristowe,  L.  R.  4  C.  P.  36;  Cruse 

308;  Smith  vs.  Liudo,  5  C.  B.  (n.  s.)  vs.   Paine,   L.   R.  4  Ch.  App.  441; 

587;  Mortimer  vs.  McCallan,  6  M.  &  Johnson  vs.  Osborne,   11   A.  &  E. 

W.  58-61 ;  Maptee  vs.  Atkinson,  2  id.  549;  Maxted  vs.  Paine,  L.  R.  4  Ex. 

440;Lloydvs.  Gilbert,  25  L.J.  Q.B.  81;  id.   (2d  action)    205;   notes  to 

74;  Xickalls  vs.  Merry,  L.  R.  7  Eng.  Wijiclesworth  vs.  Dallison,  1  Sm.  L. 

&I.  App.Cas.  .5.30:Bayliffevs.  But-  C.  843-857   (6th  ed.);  Stewart  vs. 

ter\\-orth,    1   Ex.  425;    Hisgins  vs.  Cauty,  8  M.  &  W.  160;  Robinson  vs. 

Senior,  8  M.  &  W.  834;  Stray  vs.  Moliett    L.  R.  7  H.  L.  Eng.  &  I. 


General  Rules  relative  to  Usages.  425 

In  England  this  rule  was  tirst  clearly  laid  down  in  the 
case  of  Sutton  vs.  Tatbara/  where  Lord  Denman  said  :  "  I 
think  a  person  employing  one  who  is  notoriously  a  Broker 
must  be  taken  to  authorize  his  acting  in  accordance  with 
the  rules  of  the  Stock  Exchange." 

This  rule  was  recently  reiterated  in  the  House  of  Lords 
by  Mr.  Justice  Cleasby  in  Robinson  vs.  Mollett,-  and  lim- 

App.  Cos.  802-826;  Westropp  vs.  (per  Denman,  J.),  in  which  case  the 

Solomon,  8  C.  B.  345;  Hod^kinson  principal  was  a  dealer  in  stocks,  al- 

vs.  Kelly,  L.  R.  G  Eq.  501;  Adams  though  not  a  member  of  the  Stock 

vs.  Peters,  2  C.  &  K.  723;  Marten  vs.  Exchange,  and  he  knew  well  the 

Gibbon,  33  L.  T.  (n.  s.)  561 ;  Xourse  rule,  and  that  it  would  be  relied  on 

vs.  Prime,  4  Johns.  Ch.  490;  s.  c.  7  by  the  broker  with  whom  the  princi- 

id.  69;  Horton  vs.  Morgan,  19  N.  Y.  pal    dealt.     But    it    was    held    in 

170;  Lawrence  vs.  Maxwell,  53  id.  Blackburn  vs.  Mason.  68  L.  T.  510, 

19;  Whitehouse  vs.  Moore,  13  Ab.  that  the  customer  is  not  bound  by 

Pr.  142;   overruled  on  other  points,  an     unreasonaljle     custom     unless 

\Miite  vs.  Baxter,  9  J.  &  S.  (X.  Y.)  known  to  him,  and  he  agreed  to  be 

358;  aff'd  71  N.  Y.  254;  Kingsbury  bound  by  it. 

vs.  Kirwiu,  11  J.  &  S.  (X.  Y.)  451;  It  was  held  bj*  the  Privy  Council 
aff'd  77  X.  Y.  612;  Walls  v.  Bailey,  in  Forget  vs.  Baxter,  69  L.  J.  P.  C. 
49  id.  464,  473;  Rosenstock  vs.  101,  that  when  one  employs  a 
Tonney,  32  Md.  169;  Sumner  vs.  Broker  to  do  business  on  the  Stock 
Stewart,  69  Pa.  St.  321 ;  Durant  vs.  Exchange,  he  should,  in  the  absence 
Burt,  98  Ma.ss.  161.  See  also  ca.ses  of  contrary  evidence,  be  taken  to 
cited  in  Chapter  X.,  where  the  have  employed  the  Broker  on  the 
question  as  to  liability  for  calls  is  terms  of  tlie  Stock  Exchange.  And 
disou.s.sed.  if  in  accordance  with  the  practice 
'  10  Ad.  &  E.  27.  of  the  Stock  Exchange,  the  Broker 
*L.  R.  7  11.  L.  Eng.  &  I.  -^Jjp.  receives  a  check  for  the  price  of 
Cas.  802-800.  shares  payable  to  him.self  which  ho 
\\Tien  an  outside  principal  em-  deposits  in  his  own  l)ank,  the  latter 
ploys  a  member  of  the  Stock  E.\-  is  not  liable  to  repay  the  amount 
change  to  sell  shares  subject  to  its  thereof  on  the  Broker's  insolvency, 
rules,  he  is  bound  by  th«rse  nih«  unless  it  has  kudwledge  of  the  fraud- 
unlesa  they  are  illegal  or  unrcwdu-  tilent  conduct  of  tin;  Broker  who.sn 
able  or  not  known  to  him,  Marker  account  at  the  time  wilh  ovenirawn 
vs.  I'xlward.s,  57  L.  J.  Q,  B.  1 47,  and  to  an  amount  larger  than  the  de- 
even  if  the  nile  be  unreasoimble,  ho  posit,  and  who  absconded  a  few 
in  liound  by  it,  if  it  is  known  to  him.  days  H\il)He(|uently.  Tiioin.son  va. 
Smith  vs.   Reynold V  00  L    T.  SOS  Bank  (1893),  App.  ('as.  2K2. 


426  Stock-brok<»rs  and  Stock  Exchanges. 

ited  in  certain  particulars  wliicli  are  important  to  notice: 
"  I  quite  agree  that  by  employing  the  Broker,  who  acts 
upon  a  particular  market,  you  authorize  liim  in  make  con- 
tracts upon  all  such  terms  as  are  usual  upon  the  market, 
otherwise  his  hands  would  be  tied,  and  he  might  not  be  able 
to  contract  at  all.  Therefore^  as  regards  all  such  matters  as 
the  time  and  mode  of  payment^  the  time  and  mode  of  delivery^ 
the  various  allowances  to  he  made,  the  viode  of  adjusting  dis- 
putes as  to  quality,  and  all  such  matters  as  arise  upon  the  con- 
tract made  in  the  marl-et,  the  principal  would  be  bound  by  the 
usage  ;  but  not,  I  apprehend,  because  he  must  be  supposed 
to  have  made  inquiries  and  to  have  known  them,  but  for 
the  reason  given  by  ]\[r.  Justice  Willes — because  they  w^ere 
within  the  authority  conferred  upon  his  agent." 

The  rule  has  also  received  judicial  sanction  in  Davis  & 

When  the  customers  knew  that  tinentalCo.  vs.  Hilmers,  20Fed.Rep. 
their  Connecticut  Brokers  would  717,  as  such  a  use  would  be  incon- 
deal  with  New  York  Brokers,  they  sistent  with  the  contract  of  pledjje, 
authorized  a  course  of  deahng  in  and  no  evidence  of  usa^e  is  admissi- 
accordance  with  the  usage  of  both  ble  which  would  destroy  the  con- 
stock  markets,  viz.,  that  their  tract.  See  also.  Perin  vs.  Parker, 
Brokers  miijht  repledge  securities  126  111.  207  (as  to  usages  of  Chicago 
which  they  carried  on  a  margin.  Board  of  Trade);  Denton  vs.  Jack- 
Skiff  vs.  Stoddard,  63  Conn.  19S;  21  son,  106  111.  433. 
L.  R.  A.  10!^  ^^^len  one  employs  AMien  a  principal  sends  an  order 
another  to  deal  in  a  particular  mar-  to  a  Broker  doing  business  in  an 
ket,  he  will  be  held  as  intending  that  established  market  or  trade,  for  a 
the  mode  of  performance  should  transaction  in  that  trade,  he  there- 
be  in  accordance  with  the  usages  by  confers  upon  the  Broker  author- 
of  the  market.  Id.  See  also  ity  to  deal  according  to  any  well- 
Smith  vs.  Prj'or,  7  X.  Y.  Supp.  662;  settled  usage  in  such  trade  or  mar- 
Bailey  vs.  Bensley,  87  111.  556;  Van  ket.  Bibb  vs.  .\llen.  1 19  U.  S.  489; 
Dusen  vs.  Jvmgeblut,  75  Minn.  298.  see  also  Clews  vs.  Jamieson,  182  U. 
But  the  Broker  cannot  so  pledge  S.  461,  where  the  rules  and  u.sagcs 
securities  deposited  with  him  that  of  the  Chicago  Stock  Exchange  are 
they  cannot  be  restored  to  the  fully  considered.  In  that  case  the 
owner  on  repayment  of  latter's  in-  plaintiff,  acting  through  a  firm  of 
debtedness,     Oregon   &   Transcon-   Chicago  Stock-brokers  and  the  de- 


General  Rules  relative  to  Usages.  427 

Co.  vs.  Howard/  ^vhere  it  was  held  that  a  usage  of  the 
London  Stock  Exchange  that  all  contracts  for  carrying 
over  are  made  subject  to  the  differences  being  paid  on  pay- 
day, and  failing  payment  on  pay-day,  a  Broker  Las  a  right, 
in  the  absence  of  cover  and  collateral  security,  to  close 
his  principal's  account,  provided  he  has  sent  the  account 
showing  the  balance  due  by  the  customer,  to  the  latter,  at 
least  on  the  evening  before  pay-day,  was  reasonable.  The 
court  said  "  that  although  this  specific  usage  had  not  been 
decided  to  be  valid,  the  principle  upon  which  it  rested  had 
been  recognized  in  decided  cases,  and  that  principle  was 
the  right  of  the  Broker  to  protect  himself  in  consequence 
of  the  peculiar  position  in  which  he  is  placed  owing  to 
the  nature  of  the  business  which  he  transacts  for  his 
principal." 

In  the  United  States  this  rule  seems  to  have  been  first 

fendants,  also  Chicago  Stock-bro-  of  that  market,  whether  known  to 
kers,  admitted  that  the  transactions  him  or  not,  even  although  he  did  not 
were  under  the  rules  of  the  Chicago  instruct  his  Brokers  to  buy  in  the 
Stock  Exchange,  and  it  was  held  New  York  market,  when  he  subse- 
that  although  sudi  rules  provided  a  fluently  agreed  to  pay  for  the  shares, 
remedy  for  their  violation,  they  did  Evidence  of  the  custom  of  bank- 
not  assume  to  provide  a  remedy  to  ers  and  Brokers  in  St.  Louis  is  not 
the  e.vclusion  of  the  juri.sdiction  of  admissiljle,  wlien  there  is  no  ofTcr  to 
the  courts.  If  they  did,  they  could  show  that  the  principal,  wlio  lived  in 
not  be  enforced.  The  statute  or-  Kansas  City,  knew  of  the  custom, 
ganizing  the  New  York  Cotton  E.x-  and  contracted  in  St.  Louis  with 
change,  and  its  rules,  are  admi-ssible  reference  to  it.  If  the  contract  was 
in  evidence  when  the  principal  knew  made  in  Kan.s;us  City,  evidence  of 
that  his  liroker  would  act  in  accord-  the  St.  Louis  cu.stom  would  be  in- 
ance  therewith.  Bihi)  vs  .Mien,  rompctent.  Ccxpiard  vs.  Bank  of 
149  U.  S.  481.  Kansjus  City,  12  Mo.  .\pp.  'jni . 

In  Taylor  vs.   Bailey,  4.S   N.   E.  The  nilos  of  (h((  Cliicairo  Board  of 

Rep.  2fK),  it  was  Ijcld  that  wliere  a  Trade   arc   admissil)I('    in    evidence 

cuutomer  employed  Brokers  to  pur-  when     known     to     tlie     customer. 

chaHC     stock    for    him,    and    they  Hansen  vs.  Boyd.  101  V.  S.  397. 

bouKht  f,n  the  New  York  Stock  Ex-  '  24  Q.  B.  Div.  091. 
change,  he  is  bound  liy  tlie  usagert 


4*28  Stock-brokers  and  Stock  Exchanges. 

applietl  in  the  case  of  ]Sourse  vs.  Prime/  decided  by  the 
Court  of  CUancerv  of  the  State  of  New  York,  in  the  year 
1S20,  where  it  was  lield  that  Stock-brokers  purchasing 
stocks  for  their  Clients,  and  lioklitig  them  as  collateral  se- 
curity for  the  repayment  of  the  purchase-money,  need  not 
keep  on  hand  the  identical  shares  })urchasecl,  hut  that  the 
usages  of  Brokers,  which  iiiipHedly  become  a  part  of  the 
contract,  authorize  them  to  use  such  stocks  in  their  busi- 
ness, keeping  on  hand  an  equal  number  of  similar  shares 
ready  for  deliver}'  to  their  Clients. 

But  although  a  Client  may  be  presumed  to  have  con- 
sented that  a  transaction  be  conducted  according  to  the  cus- 
tom of  Brokers,  the  Client  is  entitled  also  to  presume  that 
the  Broker  or  his  agent  Avill  not  act  contrary  to  the  custom, 
and  therefore  if  a  Broker's  agent  receives  an  order  forbid- 
den by  the  rules  of  the  Exchanges,  the  Broker  cannot  repu- 
diate his  agent's  act.^ 

Sixth.  And  the  general  rule  last  stated  does  not  relate 
solely  to  dealings  between  Brokers  and  their  Clients ;  but 
it  applies  to  dealings  between  themselves,  and  they  are  pre- 
sumed to  know  the  usafi-es  of  their  own  business.^ 


'  4  Johns.  Ch.  490;  7  id.  69  Exchange  are  binding  upon  its 
'  Newman  vs.  Lee,  84  N.  Y.  Supp.  members,  and  its  constitution  and 
106.  See  also  Caswell  vs.  Putnam,  by-laws  become  part  of  their  con- 
120  N.  Y.  153;  Douglas  vs.  Carpen-  tracts  with  each  other  (Peabody  \s. 
ter,  17  A.  D.  {X.  Y.)  329;  Whitlock  Speyers,  56  N.  Y.  230). 
vs.  Seaboard  National  Bank,  29  The  rules  of  the  New  York  Stock 
Misc.  84;  Harding  vs.  Field,  1  App.  Exchange  are  also  binding  vipon  its 
Div.  (N.  Y.)  391;  Hubbell  vs.  members,  when  not  in  conflict  with 
Drexel,  11  Fed.  Rep.  115.  the  law  of  the  land.  White  vs. 
'Durant  vs.  Burt,  98  iMass.  161;  Brownell,  2  Daly,  329,  followed  in 
Colket  vs.  Ellis,  10  Phila.  375,  s.  c.  Hutchinson  vs.  Lawrence,  67  IIow. 
32  Leg.  Int.  (Pa.)  82;  Hoffman  vs.  Prac.  38,  and  Haight  vs.  Dicker- 
Livingston,  14  J.  &  S.  rN.  Y.)  552.  man,  18  N.  Y.  Supp.  559,  63  Hun, 
So  the  rules  of  the  New  York  Gold  632.     But  a  seat  cannot  be  sold  to 


General  Kiiles  relative  to  Usages.  429 

From  the  cases  cited  under  the  two  general  rules  last 
mentioned,  it  appears  that  the  Client  is  bound,  whether  he 
knows  the  usage  or  not ;  and  here  we  find  a  decided  exce[)- 
tion  to  the  general  rule,  which  requires  that  one  can  only 
be  bound  by  a  usage  of  which  he  is  shown  to  have  knowl- 
edge.' By  employing  a  member  of  the  Stock  Exchange  to 
transact  business,  one  must  necessarily  give  him  the  means 
to  carry  it  through,  which  can  only  be  done  by  making  the 
transaction  in  accordance  with  the  course  of  business  there 
prevailing,  founded  upon  the  rules  and  usages  of  the  Ex- 
change; and  hence  such  a  person  cannot  avail  himself  of 
his  supposed  ignorance  of  the  mode  of  dealing  there  pre- 
vailing.' 

pay  debts  not  coming  within  the  Strouse,  5  Fed.   Rep.  483,   that  a 

scope    of    the    rule.s.     Cochran    vs.  custom  of  mining  stock  Brokers  to 

Adams,  180  Pa.  289.     A  rule  as  to  charge  the  full  cost  of  a  telegram  to 

notice    must    be    obeyed    strictly,  each   customer,    although   a   dozen 

WilliauLson  vs.  Ellis,  12  Pliila.  338.  customers' orders  might  be  included 

But  a  usage  of  the  New  York  Pe-  in  the  one  telegram,  w;is  unretison- 

troleum     Exchange    to    settle    all  able,  and  did  not  l)ind  the  cu4omer 

transactions   between   memljers   at  unless  he  had  knowledge  of  it. 

2'  15  P.  M.  the  next  day,  does  not  'See  particularly,  on  this  point, 

apply  to  a  principal,  a  non-meml)er,  remarks  of  Pollock,  C.  B.,  in  Mitch- 

who  instructed  a  member  to  buy  oil  ell  vs.  Xewhall,   15  M    it   W.   3()S; 

for    him    on    margin.     Greeley    vs.  Pollock  vs.  Stables,   12  Q.   B.  705; 

Doran-Wright  Co.,    IS    N.  E.  Rep.  BaylilTe  vs.  Butterworth,  1  Ex.  425; 

878.  and  see  also  Maxtctl  vs.  Paine,  I..  H. 

'  See  also  Scott  vs.  G<Klfrey,  70  L.  I  K\.  (2d  action)  id.  203.     .\s  to  its 

J.  K    B   !)5I.     When  one  deals  in  a  being  innieces.sary   to  .set   up   in  a 

particular  market,   he  will  be  pre-  pleading   against   a   client   that  he 

Humed  to  deal  in  accordance  with  had  knowledge  of  the  existence  of 

its   usages,    whether    lie    knows   of  the  usages  of  Brokers,  see  ^^^lite- 

them  or  not.     Samuels  vs.  Oliver,  house  vs   Moore,  13  .\b.  (\.  Y.)  Pr. 

130  111.  73.     So  nl.Ho  one  who  em-  112.     The    general    doctrine,    liow- 

ploys  8   board  of   t'a<le    Broker   is  ever     of   this    mso,    wliile    perhaps 

boinid  by  a  custom  of  the  Ixiard  al-  overruled  by  Stent.on  vs  .Icromc,  51 

thou'.;h   ignorant  of  it.     C'urti-i  vs.  \.    Y.   4S0,   is   not  affected   in   the 

Wright,  10  III   .\pp  4(11  tibove  resji ct.     ,*<ee  also  Miller  vs. 

but    it    w.m    held    ill    M.ir\c    \s  Iiisiir.im  c  f'o  ,  |   Ab.  New  Ca».  470. 


430  Stock-brokers  and  Stock  Excliauges. 

There  may  arise  cases  in  which  the  courts  will  not  apply 
the  two  general  rules  which  we  have  just  laid  down,  with- 
out some  evidence  that  the  party  souglit  to  be  affected  by 
the  usages  had  knowledge  of  them ;  but  they  may  conliiie 
their  application  to  the  cases  endjraced  in  the  remarks  of 
Mr.  Justice  Brett  in  Robinson  vs.  Mollett,  heretofore  cited. 

Seventh.  The  proof  that  a  party  to  a  contract  had  knowl- 
edge of  a  usage  need  not  be  direct.  It  may  be  proved,  like 
any  other  fact  of  this  description,  by  presumptive  evidence; 
by  the  circumstances  surrounding  the  transaction.'  In  Stew- 
art vs.  Cauty-  the  rules  of  the  Liverpool  Stock  Exchange 
were  admitted  in  evidence  as  the  best  means  of  showing 
Avhat  was  the  understanding  of  the  parties  in  the  contract 
in  question  by  "reasonable  time"  for  its  completion. 

Eighth.  The  usages  of  a  ])articuhir  Broker,  lii'in,  or  busi- 
ness may  also  be  introduced  to  interpret  or  govern  a  contract 
when  they  are  known  to  the  party  sought  to  be  charged 
with  the  same.-*  In  Baker  vs.  Drake'  the  plaintiff  employed 
defendants   to  purchase   stocks  for  him  upon    margin,  he 

The  fact  that  a  special  settlin<i  '  Stewart  vs.  Cauty,  8  M.  &  W. 

day  (under  a  rule  of  the  London  160.     To  charge  any  person,  how 

Stock  Exchange)  was  fraudulently  e\er,  with  a  custom  confined  to  any 

obtained,  will  not  affect  a  sale  of  particular  house  in  any  particular 

shares  of  a  new  company,  so  far  as  trade,  it  must  l)e  shown  that  he  had 

regards  members  not  concerned  in  express     knowledge     of    the    same 

the  fraud.     Ex  parte  Ward,  51  L.  J.  (Moore  vs.  Voughton,  1  Stark.  -187; 

Ch.  752.     The  rules  of  the  London  Scott  vs.  Irving,  1   B.  <fc  Ad.  605; 

Stock  Exchange  are  imported  into  Stewart  vs.  Aberdein,  4  M.  &  W. 

all  contracts  made  by  its  members.  211). 

Ex  parte  Ward.  .52  L.  J.  Ch.  73.  =  Supra. 

See  Loring  vs.  Davis,  32  Ch.  Div.  ''  Baker  vs.  Drake,  66  X.  Y.  518; 

625.  Loring  vs.  Gurney,  22  Mass.  15:  see 

Board  of  trade  usages  are  bind-  also  cases  cited  under  Rule  VII.  in 

ing  whether  knowni  to  the  customer  note. 

or  not.     Pardridge  vs.   Cutler,   68  *  66  X.  Y.  518. 
lU.  App    569. 


General  Kiiles  relative  (o  Usages.  431 

agreeing,  in  writing,  that  all  the  transactions  should  be  in 
every  way  subject  to  the  usages  of  defendant's  office.  In  an 
action  for  a  convei-sion  by  an  alleged  sale  without  notice  of 
stocks  purchased,  defendants  offerctl  to  prove  that  it  was 
the  custom  of  their  office  to  sell  on  account  of  failure  to 
furnish  sufficient  margin  at  tlie  Stock  Exchange  without 
giving  notice  to  the  Client  of  the  time  and  place  of  sale. 
This  offer  was  rejected,  and  the  appellate  court  held  that 
such  rejection  was  error.  The  court,  in  the  ])revailing  opin- 
ion (there  being  three  out  of  the  seven  judges  who  dissented), 
expressly  adhered  to  the  decision  in  Markham  vs.  Jaudon,' 
that  oral  proof  of  the  usage  of  Brokers  in  such  cases  is 
not  admissible  to  add  to  or  make  part  of  the  contract ;  but 
held  that  inasmuch  as  the  paper  had  been  admitted  in  the 
case  without  objection,  by  which  the  Client  agreed  that  all 
transactions  in  stocks  should  be  in  every  way  subject  to  the 
usages  of  the  defendant's  office,  such  paper  must  be  construed, 
and  that  parol  proof  was  admissible  to  explain  what  those 
usages  were ;  and  that  if  parol  proof  should  show  that  it 
was  a  usage  of  the  defendant's  office  for  want  of  a  margin 
to  sell  stocks  in  pledge  at  the  public  Board  of  Brokers,  with- 
out notice  to  the  pledgcji-  of  the  time  or  place  of  sale,  such 
proof  tended  to  establish  an  agreement  to  that  effect,  and 
thatsuch  an  a;rr''<'iiH'nt  would  not  contravene  any  statute 
nor  infringe  upon  puhlic  policy.'^ 

'41  N.  Y.  23.5.  ford,    31    App,    Div.    (-N.   V.)   228. 

'  See  al-so,  in  thi.s  connection,  Col-  And  u  Stock-broker  is   liiilile  to  a 

ket  V8.   Elli«,   10   Phila.   (I'a.)  .375;  corporation    wlien    he    witnejwe-s   a 

8.  c.  32  Leg.  Int.  82.     The  habitual  power  of   attorney   to   tran.sfor   its 

course  of  dealincH  between  tlie  par-  bonds,  inider  a  custom  of  railway 

tics  may  be  shown  as  justifying  a  transfer  ofTices  in  .New  York  City  to 

cotton  Broker  fo  make  a  ^ale  with-  accept  such   witnessing  as  a  guar- 

put    notice.     Ilobin.son    vs.    ('raw-  anty  of  iticntity,     Jennie  Clarkson 


432  Stock-brokers  and  Stock  Exchanges. 

JVhith.  On  the  other  hand,  a  Broker  cannot  bind  his 
Client  Avithout  his  ex]>ress  agreement  by  transacting  busi- 
ness, connnitted  to  iiim,  in  any  other  than  the  ordinary  and 
customary  method.' 

Tenth.  Although  it  is  in  general  the  province  of  a  court 
to  construe  a  written  instrument,  the  construction  of  a  par- 
ticular mercantile  ex])ression  therein  is  for  the  jury.^ 

Elecenth.  In  respect  to  proving  a  commercial  usage,  it 
has  been  held  that  one  witness  is  sufficient  to  establish  the 
same,  if  his  means  of  knowledge  are  abundant  and  his  testi- 
mony full  and  satisfactor3^^  With  this  preliminary  state- 
Home  vs.  Chesapciike  R.  R.  Co.,  83  See  also  Milroy  vs.  Chicaj^o,  M.  ct  St. 
N.  Y.  Supp.  913.  P.  Ry.  Co.,  67  N.  W.  TiKv,  Scott  vs. 

A  custom  of  Stock-brokers  of  Salt  Brown,  60  N.  Y.  Supp.  511 ;  29  Misc. 
Lake  City  to  carry  in  their  names,  as  320.  When  there  is  sufHcient  evi- 
trustees,  the  stock  of  third  parties,  dence  of  a  custom  as  to  the  calling 
and  to  transfer  it  without  the  con-  of  "margins,"  the  question  of  its 
sent  of  their  cestuis  que  trust,  is  existence  will  be  submitted  to  the 
inoperative  unless  assented  to  both  jury,  the  court  saying  that  the  cus- 
by  the  customer  and  Broker,  torn  is  so  general  among  American 
Geyser-Marion  Gold  Mining  Co.  vs.  Exchanges  in  regard  to  the  sale  of 
Stark,  53  L.  R.  A.  64.  gniin,  provisions,  cotton,  stock,  and 

'  Wiltshire  vs.  Sims,  1  Campb.  bonds  for  future  delivery,  that  it 
258;  Brown  vs.  Boorman,  11  CI.  &  might  be  doulited  whether  it  might 
Fin.  1;  Maxted  vs.  Paine,  L.  R.  4  not  be  noticed  judicially.  Hill  vs. 
Ex.  81;  Maxted  vs.  Morris,  21  L.  T.  Morris,  21  Mo.  App.  256.  See  also 
(n.  s.)  535;  Fletcher  vs.  Marshall,  15  ScoUans  vs.  Rollins,  60  N.  E  Rep. 
M.  &  W.  755;  Hoffman  vs.  Livings-   983. 

ton,14J.  &S.  (N.Y.)552.     Sec  also       'Vail    vs.    Rice,    5    N.    Y.    155; 
Chap.  in.  Thomas  vs.  Graves,  1  Mill  (S.  C), 

^Chitty  on  Cont.  82;  Smith  vs.  Const.  Rep.  1.50;  Parrot  vs.  Thatch- 
Blandy,  Ry.  &  >L  260;  Hutchinson  er,  26  Mjiss.  426;  Patridge  vs.  For- 
vs.  Bowker,  5  M.  k  W.  540;  Smith  syth,  29  Ala.  200.  Some  cases, 
vs.  Bouvier,  70  Pa.  St.  325;  Dawson  however,  hold  that  one  witness  is 
vs.  Kittle,  4  Hill,  107;  Goodyear  vs.  not  sufficient  to  prove  a  custom. 
Ogden,  id.  104.  Bissell  vs.  Ryan,  23  111.  566;  Wood 

WTiether  a  custom  exists  is  for  the  vs.  Hickok,  2  Wend.  (^N.  Y.)  501; 
jur\-  fSuIlivan  vs.  .Ternigan.  21  Fla.  Halwerson  vs.  Cole,  1  Spears  (S.  C), 
264\  although  its  reasonableness  .321.  But  an  isolated  in.stance  is 
and  validity  are  for  the  court.     (Id.)    not  sufficient  to  prove  a  custom,  nor 


Usasres  of  Stock-brokers  held  Binding.         433 

inent  of  some  of  the  leading  general  principles  governing 
usages,  Ave  shall  now  proceed  to  set  forth  the  most  promi- 
nent cases  in  both  countries  relating  to  Stock-brokers  in 
which  their  usages  have  been  sustained  and  rejected,  with 
iuch  comments  as  the  circumstances  seem  to  call  for  in  the 
light  of  these  general  rules. 

n.  Cases  in  which  Usages   of  Stock-brokers  held 
Binding. 

(o.)   1)1  the  United  States. 

In  the  State  of  New  York  the  first  case  in  which  the 
usage  of  Stock-brokers  was  sustained  is  Xourse  vs.  Prime, 
to  which  we  have  already  referred.^  That  case  was  followed 
in  Horton  vs.  Morgan,^  where  the  plaintiff  had  ordered  the 
defendant,  a  Stock-broker,  to  purchase  stock  for  him  at  the 
New  York  Stock  Exchange,  advancing  part  of  the  money 
as  margin  to  pay  for  the  same,  the  Broker  making  up  the 
balance  from  his  own  funds.  It  appeared  that  defendant 
did  not  keep  the  identical  stock  on  hand  which  he  had  pur- 
chased, but,  upon  demand  of  his  Client,  sent  to  him  certif- 
icates in  the  name  of  his  clerk,  with  blank  powers  of  at- 
torney signed  by  the  latter.  It  was  proved  by  Brokers 
that  purchases  of  stock  at  the  Board  of  Brokers  were  al- 
wavs  mad<;  in  the  name  of  the  Bioker  without  disclosinjr 

will  evidence  of  the  castom  of  one  the    jury.     Dickinson    vs.    Pouph- 

pereon  be  sufficient  to  cstabli.sh  a  keepsie,  75  X.  V.  77.     If  the  tcsti- 

general  course  of  trade   (Hurr  vh.  mony   as   to   a   custom   of   cotton 

Sickles,  17  .\rk   4'2H;  Cope  vh.  Dodd,  factors  is  deiiie<l  by  another  witness, 

13  Pa.  St  3:i;  .\dam.s  vs.  Otterback,  it    is    not     provp<l.     Woottcrs    vs. 

1.5  How   (U   S  ]  .WO).  KaiifTman.  07  Tox    IKS. 

It  Is  not   necessary   tliat    all   tlio  '  .\nto,  pp   2.'»3,  127. 

witnes^ses  Hhoiijd  airn-c  to  jyrovc  the  '  I'J  .\'.  V.  170 
custom       It  i.H  then  a  (ji  jot  ion  for 
L'8 


434  Stock-brokers  and  Stock  Exchanges. 

his  principars  name,  and  that  his  liability  to  his  principal 
was  limited  to  transferring  to  him  the  required  number  of 
shares  when  called  upon,  without  regard  to  the  particular 
or  identical  shares  bought. 

The  court,  on  appeal,  held  that  this  practice,  by  which 
Brokers  onl}-,  and  not  their  Clients,  are  known  in  their 
dealings  with  each  other,  was  not  unreasonable  ;  and  the 
plaintiff,  by  directing  the  purchase  to  be  made,  must  be  un- 
derstood as  consenting  that  it  should  be  done  in  the  usual 
manner;  and  that  the  plaintiff  had  no  interest  in  having 
his  shares  kept  separately  from  the  mass  of  defendant's 
stock,  one  share  being  precisely  equal  in  value  to  every  other 
share.^  Although  the  court  in  this  case  expressly  refrained 
from  passing  upon  the  question  whether  a  usage  of  Stock- 
brokers to  use  or  hypothecate  stocks  held  by  them  on  mar- 
gin for  their  Clients  was  valid,  there  is  abundance  of  reason 
and  authority  for  sustaining  sucli  usage.^     And  it  has  also 

'  The  principle  of  these  cases  has  margin  carried  stocks  is  very  fully 

been    sevi  ral    times    reaflirmed    in  considered. 

New  York.     See  Ch.   III.  p.  253.  Reasonable  notice  must  be  given 

See  also  Caswell  vs.  Putnam,  120  to  furnish  more  margin,  Lazare  vs. 

N.Y.  153;  Harding  vs.  Field,  lApp.  Allen,  20  App.  Div.  616,  in  which 

D!v.  (N.  Y.)  391.  case,  although  a  judgment  for  de- 

'  Lawrence  vs.  Maxwell,  53  N.  Y.  fendant  Stock-broker,  upon  a  di- 
19,  and  also  cases  collected  in  Ch.  rected  verdict,  was  affirmed,  the 
III.  at  p.  253.  As  to  how  far  evi-  court  expressed  an  opinion  that  a 
dence  is  admissible  to  show  that  a  notice  of  a  little  over  an  hour,  was 
Client  may  be  bound,  when  he  re-  unreasonable.  See  also  Hess  vs. 
fuses  to  put  up  additional  margins,  Rau,  95  N.  Y.  362;  Gillett  vs.  Whit- 
by a  usage  of  Wall  Street  authoriz-  ing,  120  id.  402;  Rogers  vs.  Wiley, 
ing  a  settlement  of  his  account  at  131  id.  527;  Swan  vs.  Baxter,  36 
private  instead  of  public  sale,  see  Misc.  (N.  Y.)  233. 
Cameron  vs.  Durkheim,  55  N.  Y.  See  Douglas  vs.  Carpenter,  17  A. 
425.  See  also  Skiff  vs.  Stoddard,  63  D.  329,  as  to  liability  of  Broker  for 
Conn.  19S;  21  L.  R.  A.  102,  and  conversion  if  he  pledges  his  Client's 
cases  cited,  where  the  relation  be-  securities  with  others,  for  a  larger 
tween  Brokers  and   Clients   as   to  amount  than  his  Client  owes  him. 


Usages  of  Stock-brokers  held  Binding.         435 

been  held  in  New  York  that  the  rules  of  the  Board  of  Bro- 
kers are  binding  upon  third  persons  who  employ  members 
thereof  to  make  transactions  with  other  Brokers  relative  to 
stocks.  And,  accordingly,  where  AV.  and  C,  being  mem- 
bers of  the  Open  Board  of  Brokers,  and  W.  as  Broker  of  B., 
but  in  his  own  name,  entered  into  a  contract  with  C.  for 
the  sale  of  certain  stocks,  according  to  the  rules  of  the  Ex- 
change, of  which  B.  had  knowledge,  and  thereafter,  under 
the  rules,  C.  called  on  W.  for  further  margin  ;  whereupon 
"W.  notified  B.,  and  reminded  him  that  he  would  be  liable 
to  suspension  if  he  did  not  comply  ;  and  B.  then  agreed  that 
if  W.  would  not  put  up  the  margins  he  would  protect  him 
against  all  loss  which  should  ensue  from  such  refusal,  and  if 
he  was  suspended,  would  pay  him  during  the  time  of  his 
suspension  from  the  board  at  a  rate  equal  to  the  average 
business  of  AV.  for  the  previous  year,  with  ten  per  cent 
added  thereto :  and  W.  did  refuse  to  put  up  the  margin, 
and  was  suspended — held,  that  he  could  recover  from  B. 
under  this  agreement  ;  that  there  was  sufficient  mutuality 
and  consideration,  and  the  same  was  perfectly  valid.' 

-After  all  advances  ha\e  been  paid,  to  sell  such  collateral  and  credit  the 

the  Broker  is  not  entitled  to  pledge  customer    with    the   proceeds,    was 

the  stock,  and  Is  liable  as  for  a  con-  properly  excluded,  as  whatever  the 

version.     Van  Voorhis  vs.  Rea  Bros,  custom  of  Brokers  may  be  while  a 

«t  Co.,  153  Pa.  19.     See  also  Trans-  speculation    is   pending,    it   cannot 

continental  Co.  vs.  Hilmers,  20  Fed.  apply  to  the  broker's  right  to  recover 

Rep.   717;    Whitlock   vs.   Seaboard  what  is  duo  him  after  he  hius  car- 

.N'ational  Bank,  29  .Misc.    .N'.Y.)  .S4.  ried  his  cu.stonier's  stocks  lus    long 

In   the  ca.se  of    De   Cordova   vs.  as     ro(iuestctl,      and     finally    sold 

Banium,  1.%  .V.  Y.  Gl."),  it  was  held  them  pursuant  to  his ex|)ress  order, 

that  a  Stock-broker  is  not  obliged  '  White  vs    Baxter,  0  J.  it  S.  (.N. 

to    sell    collateral    security    before  Y.)  MS;  afT'd  71    X.  Y.  251.     See 

suing  his  castomer   for  the  balance  also,  for  other  cases  in  which  usages 

of   his  aecount,  when   there  is  no  of     Brokers     have     been     upheld, 

agreement  to  that  effect    and   evi-  \Vhitehou.se  vs.  Moore,  13*. \b.  (.\. 

dence  of  a  custom  of  Stock-holders  Y.)    I'r.    112,    which    in   the   injiin. 


436  Stock-brokers  smd  Stock  Excliaiiges. 

Baker  vs.  Drake,'  which  has  been  fully  noticed  under  the 
eighth  general  rule,'^  sliould  here  be  alluded  to  as  further 
extending  the  law  of  usage,  and  laying  down  the  precedent 
that  })arties  may  also  be  bound  by  the  usages  of  a  particu- 
kir  Brokers  otlice.^ 

So  a  Client  engaged  in  speculative  purchases  and  sales  of 
cotton  was  held  to  be  presumed  to  know  the  usages  in  re- 
spect to  Cotton-brokers  and  the  Cotton  Exchange  ;  and  it 
being  shown  that  he  had  had  previous  dealings  in  the  busi- 
ness, he  was  not  permitted  to  set  up  ignorance  of  the  mean- 
ing of  the  term  "closing-out,"  and  the  mode  in  which  it 
was  done.'' 

Pennsylvania  also  furnishes  a  very  strong  precedent  for 
upholding  the  usages  of  Brokers  in  the  case  of  Colket  vs. 
Ellis.^  There,  the  ])arties  being  members  of  the  Philadel- 
phia Stock  Exchange,  the  plaintiffs  borrowed  on  "  call " 
a  sum  of  money  from  defendants,  depositing  as  collateral 
securit}'  certain  stocks.  It  was  shown  that  there  was  an 
established  general  usage  among  Brokers,  when  a  "  call " 
loan  is  not  paid  on  the  day  it  is  demanded,  to  sell   out  the 

however,  is  overruled  l)y  Baker  vs.  *  Kingsbury  vs.  Kirwin,  11  J.  &S. 

Drake,  66  N.  Y.  518,  522;  Corbctt  (N.  Y.)  451;  aff'd  77   N.  Y.  612. 

vs.  Underwood,  83  111.  324;  Hill  vs.  A  usage  of  the  New  York  Stock 

Morris,  21  Mo.  App.  256;  3  West.  Exchange  not  to  make  any  distinc- 

409;  also  cases  cited  under  Ch.  III.  tion,  in  distributing  the  proceeds  of 

p.  253.  the  transfer  of  a  membership,  be- 

'  66  N.  Y.  518.  tween  debts  due   individual   mem- 

'  Ante,  p.  430.  bers,   and   debts   due   partnerships, 

'  The  above  cases  in  New  York,  one  of  whose  members  was  a  mem- 

the  case  of  Colket  vs.  Ellis,  32  Leg.  ber  of  the  Exchange,  was  held  es- 

Int.  82,  s.  c.  10  Phila.  (Pa.)  375,  and  tablished  in  In  re  Hayes,  75  N.  Y. 

the  English  case  of  Lacey  vs.  Hill  Supp.  312,  so  as  to  give  effect  to  an 

(Scrimgeour's  Claim),  L.  R.  8  Ch.  ambiguous   rule   of  the  Exchange. 

App.  921,  would  seem  to  be  irrecoi)-  "32  Leg.  Int.  (Pa.)  82;  s.  c.  10 

cilable  with  the  ca.se  of  Markham  vs.  Phila.  (Pa.)  375. 
Jaudon,  41  N.  Y.  235. 


Usages  of  Stock-brokers  held  Uiiuling.  437 

collateral  securities  at  the  Board  of  Brokers  without  fur- 
ther notice  to  the  borrower.  The  trial  court  found  that 
both  parties  were  familiar  with  the  usage,  and  both  acted 
throughout  on  the  basis  of  its  validity.  The  money  not 
having  been  paid  upon  call  made  in  the  regular  way,  the 
defendants  sold  the  stock  on  the  same  day  at  the  Stock 
Exchange,  first  notifying  the  plaintiffs  of  their  intention, 
and  rendered  the  former  accounts  of  the  sale.  The  plain- 
tiffs subsequently  tendered  the  amount  of  the  loan,  and  de- 
manded the  return  of  the  stocks  ])ledged  as  collateral ;  and, 
upon  refusal,  brought  an  action  of  trover  to  recover  for  the 
conversion  of  the  same  upon  the  ground  that  the  usage  un- 
der which  the  sale  was  made  was  in  contravention  of  the 
rule  of  law  requiring  a  sale  of  collaterals  to  be  public  after 
due  notice.  But  the  trial  judge,  Mitchell,  J.,  overruled  this 
defence,  holding,  in  a  well-considered  opinion,  that  where 
no  statute  or  principle  of  public  policy  intervenes  but  a 
rule  of  law,  which  is  a  mere  privilege,  and  ma}'^  be  waived, 
there  is  no  reason  why  the  waiver  may  not  be  as  well  estab- 
lished by  a  custom  known  to  and  acquiesced  in  by  the  par- 
ties as  b}'  an  exi)ress  conti'act ;  and,  without  intimating 
what  would  be  the  effect  if  such  a  usage  were  set  up  against 
an  outside  party,  he  was  of  the  opinion  that,  as  l)etweon  the 
parties  before  him,  both  members  of  the  Board  of  IJrokors, 
and  familiar  with  and  dealing  on  the  l)asis  of  such  usage, 
it  was  valid  and  lawful,  ami  controlled  th(;  ri<rlits  of  the 
parties. 

This  case  confirms  the  views  heretofore  expressed  under 
the  fourth  general  rule  laid  down  in  this  chapter,'  and  wo 
confess  that  we  can  perceive  ikj  legal  or  substantial  reason 

'  P.  41  (i. 


488  Stock-hrokcrs  ami  Slock  Exchanges. 

for  not  applying  the  rule  as  well  to  third  persons  who  have 
full  and  conn)lete  knowledge  of  the  usage  as  to  members 
of  the  Stock  Exchange — the  \vhole  basis  of  the  doctrine  of 
usage  resting  upon  the  knowledge  of  the  parties — and  why 
eWdence  of  a  similar  usage  should  not  have  been  received 
in  the  case  of  Markham  vs.  Jaudon.'  In  Massachusetts 
evidence  has  also  been  held  admissible  to  show  that  by  the 
custom  of  Brokers  in  Boston,  "  when  they  receive  an  order 
to  buy  stocks  on  margin,  it  means  that  the  Broker  makes  a 
contract,  verbal  or  written,  with  any  person  whatever,  that 
within  sixty  days  from  said  date,  if  the  stock  goes  up  the 
seller  shall  pay  in  cash  the  difference,  and  if  the  stock  goes 
down  the  buyer  shall  pay  in  cash  the  difference  ;  and  that 
the  money,  or  margin,  put  np  by  the  buyer  is  for  security 

'41  N.  Y.  245;  see  also,  in  this  It  has  been  also  held  in  Pennsyl- 

connection,  Lacey  vs.  Hill  (Scrim-  vania  that  when  a  Broker  is  em- 

geour'sClaim),  L.R.  8  Ch.  App.  921.  ployed  to  sell  stock,  the  fact  that 

In  Van   Horn  vs.   GilbouRh,   21  the  Broker  transferred  the  stock  to 

Am.  L.  R.  (n.  s.)  171;  10  \V.  N.  347;  his  own  name  was  in  accordance 

13  Lan.    Bar   61,  where    a    Stock-  with  the  legitimate,  if  not  the  u.sual, 

broker  bought  railroad  stock  for  his  course  of  l)usincss,  and  when  lie  sold 

Client,  and,  according  to  a  Broker's  only  a  small  part  of  it,  and  the  rest 

usage,  pledged  it  as  collateral  for  remained  on  his  hands  l^ecause  he 

payment  of  a  balance  of  the  pur-  could  not  dispose  of  it  without  a 

chase  price,  it  was  held  that,  under  heavy  sacrifice,  a  jury  was  not  war- 

a  custom  of  Brokers,  he  was  justified  ranted   in   charging  him  with  the 

in  pledging  and  the  pledgee  in  sub-  whole  value  of  the  stock,  unless  he 

sequently  selling  the  stock,  on  the  refused   to    account,    or    return    it. 

fall   of   the   market   price,   without  Leddy  vs.  Flanigan,  3  Phila.   355. 

notice  to  his  Client,  to  whom  both  Likewise  it  was  held  in  Sheppard 

customs  were  known,  and  was  en-  vs.  Barrett,  42  Leg.  Int.  (Pa.)  140, 

titled  to  recover  what  was  owing  to  that  the  term  "friendly  loan"  by 

him  by  his  Client  on  the  transaction,  the  custom  of  Brokers  is  universally 

See  note  as  to  the  efTect  of  Stock  understood  to  be  a  loan  of  money  or 

Exchange  usajes  on  non-members  stocks,  between  Brokers  for  business 

appended  to  the  report  of  last  cited  purposes,  and  under  the  rules  of  the 

ca.se  in  21   Am.  L.  X.   (n.  s.)   171.  Philadelphia  Stock  Exchange  such 

See  Covell  vs.  Loud,  135  Mass.  41.  are  entitled  to  a  preference  out  of 


Usages  of  Stock-brokei-s  held  Binding.         439 

that  he  shall  perform  his  contract."  '  And  it  is  not  error 
on  the  part  of  a  judge  to  instruct  a  jury  that  the  fact  that 
both  parties  were  Brokers,  and  might  be  presumed  to  know 
the  usages  of  their  business,  was  entitled  to  great  weight.' 

The  most  important  recent  decision  as  to  the  relation  of 
Stock-brokers  and  their  customers  so  far  as  rcijards  the 
carrying  of  margins  is  furnished  by  the  State  of  Connecti- 
cut where  it  was  held  in  Skiff  vs.  Stoddard  ^  (per  Prentice, 
J.),  that  when  a  Client  in  Connecticut  employed  a  Broker 
in  New  Hartford  to  effect  transactions  for  him  on  the  New 
York  Stock  Exchange,  he  would  be  bound  by  the  usages  of 
that  market,  provided  they  were  not  unreasonable,  and  that 
a  custom  to  repledge  a  customer's  stock  held  on  margin  was 
not  unreasonable. 

In  Ohio  the  evidence  showed  the  existence  in  New  York 
and  Cincinnati  of  a  usage  of  Stock-brokers  to  look  to  each 
other  personally  when  the  principals  are  not  brought  into 
the  transaction.     This  evidence  was  uncontradicted,  but  the 


the  proceeds  of  a  member's  seat,  rules  of  the  Xew  Orleans  Cotton  Ex- 
See  also  Thompson  vs.  Adams,  93  change  as  to  substitution  of  con- 
Pa.  55.  tracts   are   binding  upon  principals 

'  Commonwealth    vs.    Cooper,    4  who    are    acquainted    with    them. 

Mass.  L.  R.  (May  4,  1881)  No.  24;  Conner  vs.  Robertson,  37  La.  Ann. 

B.  c.  Am.  L.  Rev.  3G0  (.May,  1881).  815;  Lehman  vs.  Keld,  37  Fed.  852; 

The    cu.stom    of    "ringing    up"  Irwin   vs.   Williar,    110   U.  S.  499; 

amongst  grain  IJrokers  in  Baltimore  Barnett  vs.  Warren,  82  Ala.  557  (2 

Is  valid.     Ward   vs.   Vosljurgh,   31  So.  457)  (u.sage  of  cotton  Factors  to 

Fed.  12.     .\  cu.stom  of  the  board  of  acquire  lien   on   cotton   stored   for 

trade  by  which  a  buyer  of  pjrain  sale  for  moneys  advanced,  binding); 

with  warranty  must  within  a  given  Burbridge  vs.  Gumbel,  72  Miss.  371 

time  object  to  the  quality,  Ls  rca-  (evidence  of  a  usage  to  apply  in- 

Bonatjlc   as   between    its    members,  structioiis  as  to  insuring  cotton  only 

Evcrringham  vs.  Lord,  19  111.  .\pp.  to  the  seiison  in  which  the   instruc- 

56.5.      Sec  also  Riebo  vs.  Hollman,  tions  were  given,  is  adtnissible). 
69  111.   App,   19,  and   Kinney '.s  III.        '  Durant  vs.  Burt,  9S  Miuhs.  102. 
Dig,  title  "Board  of  Trade."     The       '03  Conn.  198;  21  L.  11.  A.  102. 


440  Stock-brokers  und  Stock  Exchauges. 

jury  ignored  it,  and  gave  a  defendant  Broker,  ^vllO  was  sued 
for  the  sum  ])aid  for  foi-ged  bonds,  and  whose  defence  was 
that  be  was  acting  for  a  principal,  and  tbat  be,  as  agent 
was  not  liable,  a  verdict  in  bis  favor,  and  tbe  court  on  motion 
of  plaintiff  granted  a  new  trial,  saying  tbe  trial  court  bad 
fully  instructed  tbe  jury  upon  this  (juestioii,  and  tbe  effect 
of  it.^ 

In  tbe  same  State  a  custom  of  the  pork  trade  to  close 
tbe  year  on  October  31st,  and  to  charge  extra  commis- 
sions on  stock  carried  over,  has  been  beld  reasonable.^ 

It  has  also  been  lately  beld  in  Massacbusetts  tbat  a  usage 
of  Bankers  and  Brokers  and  others  engaged  in  dealing  in 
securities,  to  treat  certificates  endorsed  in  blank  as  negotiable, 
and  as  enabling  tbe  bearer  to  give  a  good  title  to  a  bona 
fide  purchaser,  is  binding.' 

A  usage  obtaining  in  Baltimore,  on  tbe  Stock  Exchange, 
and  amongst  Bankers  and  Brokers,  requiring  registered  con- 
sols to  be  transferred  in  writing,  and  to  be  accompanied  by 
a  power  of  attorney  acknowledged  before  a  notar}'  public, 
has  been  held  in  Taliferro  vs.  Bank*  to  be  binding,  and  to 
put  an  intended  pledgee  on  inquiry  as  to  ownership,  but 
the  usage  must  be  itself  proved,  and  not  tbe  rules  of  the 
Stock  Exchange,  the  existence  of  which  is  not  evidence 
of  tbe  usage. 

A  usase  of  tbe  Stock  Exchange  that  when  a  Stock- 
broker  is  employed  to  sell  stock,  and  he  is  subsequently 
employed  by  another  person  to  purchase  tbe  same  kind  of 


'Souther    vs.    Stoeckle,    7    Ohio       =>  gcoHans  vs.  Rollins,  60  N.    E. 
Dec.  Rep.  511.     See  BaUey  vs.  Gal-   Rep.  983. 
braith,  100  Tenn.  599.  *  17  Atl.  1036. 

*  Mathews    vs.    Briggs,    7    Ohio 
Dec.  Rep.  23. 


Usages  of  Stoek-brokers  held  Binding.         441 

stock,  at  a  limited  price,  he  may  secure  the  services  of  an- 
other Broker  to  bid  the  prices  fixed  by  the  intending  pur- 
chaser, has  been  held  valid  in  Alabama  in  Terry  vs.  Bir- 
mingham National  Bank,'  when  neither  the  buyer  nor  seller 
had  any  knowledge  of  each  other's  intentions,  or  of  their  in- 
structions to  the  Broker. 

Although  the  usages  of  the  London  and  New  York  Stock 
Exchanges  are  similar  as  to  requiring  the  execution  of 
transfei-s  of  shares  in  bhink  to  be  authenticated  by  the 
proper  officer,  yet  it  was  held  in  Colonial  Bank  vs.  Cady,^ 
that  such  a  transfer,  by  executors,  in  England,  of  shares  in 
an  American  corporation,  did  not  estop  the  executors  from 
claiming  them  from  defendant  bank  to  whom  they  had 
been  pledged  by  a  Stock-broker  for  value  without  notice, 
although  if  the  case  wei'e  decided  by  American  law  such 
a  transferee  would  take  title  even  if  the  executors'  siy:- 
natures  to  the  transfer  Avere  not  verified  by  the  consul. 

(b.)    In    EiigJ<ni<l. 

* 

In  England  the  question  of  the  effect  of  usage  upon  con- 
tracts has  been  carefully  and  thoroughly  C(jnsidered  by  the 
courts. 

There  are  two  classes  of  cases  in  which  the  usa<res  of 
Stock-brokers  have  been  sustained  which  have  already  been 
referred  to  at  length,  and  they  need  not  be  here  set  forth."* 
The  lii'st  class  comprises  those  cases  in  which  a  principal  or 
Client  <lin;cted  his  Jji(jk(M*  to  buy  or  .st'll  securities  or  tomaUe 
corUracts  upon  tin?  St(^ck  Exchange  ;  and  where  the  Broker 
has  sought  indemnity  at  the  hands  of  his  Client  for  acts  per- 

'  13  So.  149.  'SeeCh.  X. 

»  15  App.  Caa.  267;  L.  11.  38  Ch. 
Div.  399. 


442  Stock-brokers  and  Stock  Exchanges. 

formed  by  him  in  pursuance  of  directions  of  bis  Client.  Tbe 
principle  applied  was,  tbat  parties  who  make  or  direct  a 
barsrain  or  transaction  to  be  made  in  connection  with  a 
particular  trade  are  taken  to  have  contracted  subject,  or  with 
reference,  to  the  known  usages  of  that  trade.  Sutton  vs. 
Tathani  and  Pollock  vs.  Stables^  are  illustrations  of  this 
class,  as  are  the  other  cases  cited  under  the  ffth  general 
rule.^  As  the  most  important  of  these  cases  have  been  set 
forth  in  Chapter  1 11.,^  a  reference  to  them  is  all  that  is  nec- 
essary in  this  connection. 

The  second  class  comprises  those  cases  in  which  the  prin- 
cipal question  involved  was  upon  whom  the  liability  for 
"  calls ''  rested  where  stocks  were  sold  on  the  Stock  Ex- 
change. In  these  cases  the  courts  fully  investigated  the 
various  steps  of  a  purchase  and  sale  upon  the  Stock  Ex- 
change, and  rigorously  and  uniformly  applied  the  usages  and 
rules  of  Stock-brokers  to  explain  the  contracts  there  entered 
into,  and  to  fix  the  ultimate  responsibility  for  "  calls  "  made 
where  the  capital  stock  Avas  not  fully  paid  up  to  the  limit 
fixed  by  the  charter  or  articles  of  incorporation.  As  these 
cases  have  been  fully  described  in  Chapter  X.,  it  is  only 
necessary,  in  this  connection,  to  refer  to  that  portion  of  the 
work  ;  ^  but  their  perusal  will  forcibly  illustrate  the  extent 
to  which  the  English  courts  have  gone  in  ap})lying  this 
doctrine  of  usage.     In  considering  the  soundness  of  the  cases 

*  Ante,    p.    424.     The    following  which  also  held  that  a  Broker  might, 
usages  have  been  held  binding:  the  in  carrying  over,  transfer  two  par- 
customer,  when  the  Broker  becomes  eels  of  shares  bought  from  two  job- 
a  defaulter,  has  no  option  to  close  bers  for  two  customers,   from  one 
at  "hammer"  prices,  and  a  Broker  jobber  to  another, 
who  is  in.structed  to  buy  a  specific  ^  P.  424. 
number  of  shares  may  buy  from  '  P.  218  et  seq. 
more  than  one  jobber.     Levitt  vs.  ^  At  p.  981  et  seq. 
Hamblet,  6  Com.  Cas.  79;  5  ib.  326, 


Usages  of  Stock-brokers  held  Binding.         443 

in  which  usage  has  been  rejected,  these  English  adjudications 
should  be  prominently  kept  in  view. 

There  are  some  cases  in  England  that  do  not  fall  within 
either  of  these  classes,  and  to  them  a  more  special  reference 
should  be  made.  Thus/  it  has  been  decided  that  evidence  of 
the  course  of  business  and  custom  of  London  Brokers  should 
be  admitted  to  explain  the  authority  meant  to  be  given  to  a 
London  banker  by  a  power  of  attorney  to  sell  stock  sent 
through  a  countr}'-  banker. 

So  in  an  action  for  the  non-acceptance  of  raiI^tay  shares, 
which  by  the  contract  (made  at  Liverpool  through  Brokers) 
were  to  be  delivered  in  a  reasonable  time,  a  written  rule  of 
the  Liverpool  Stock  Exchange,  stated  to  be  acted  upon  by 
all  the  Liverpool  Brokers,  ''  that  the  seller  of  shares  was  in 
all  cases  entitled  to  seven  days  to  complete  his  contract  by 
delivery,  the  time  to  be  computed  from  the  day  on  which  he 
was  acquainted  with  the  name  of  his  transferee,"  was  held 
admissible  upon  an  issue  whether  the  plaintiff,  within  a  rea- 
sonable time,  was  ready  and  willing  and  offered  to  transfer 
the  shares ;  although  it  was  not  proved  that  either  of  the 
parties  or  their  Brokers  were  members  of  the  Liverpool  Ex- 
change.^ And,  in  avoidance  of  a  sale  made  by  a  Broker, 
the  defendant  may  prove  that  by  the  custom  of  the  trade 
the  authority  to  sell  expires  with  the  day  on  which  it  was 
given.' 

It  has  also  been  held  that  parol  evidence  is  competent  to 
show  that  a  perscm  acted  as  a  Broker  for  the  plaintitr  ;  and 
that  parol  evidence  as  to  the  usage  of  trade  in  making  liro- 

'  Adams  vs.  Petere.  2  C.  &  K.  309.  Also  Field  vs.  Lelean,  OH.  it 
723.  N.  017. 

*  Stewart  vs.  Cauty,  8  M.  <k  \V         '  Dirkonwin  vs.  Tilwiill,  1  Stiirk. 

IJS  ;l  ("urnpb.  279. 


444  Stock-brokers  and  Stock  E.vchauges. 

kers  liable  where  tlicir  principals  aie  ikjI  disclosed  is  alsoiid- 
uiissible,  on  the  ground  that  such  evidence  does  uot  vary  the 
terms  of  a  written  contract,  but  merely  annexes  a  particuhir 
or  incident  thereto  which,  though  not  mentioned  in  the  con- 
tract, was  connected  with  it,  or  with  the  relations  growing 
out  of  it.  Such  evidence  is  admitted  with  a  view  of  giving 
effect,  as  far  as  possible,  to  the  presumed  intentions  of  the 
parties.' 

It  has  been  likewise  held  that  under  a  practice  of  the 
London  Stock  Exchange  (where  a  loan  is  made  by  one 
Broker  to  another  on  a  deposit  of  stock)  that  the  lender 
send  back  the  securities  on  the  morning  of  the  day  of  pay- 
ment, the  borrower  to  send  a  good  check,  or  return  the 
same,  or  similar,  securities  later  in  the  day,  the  lender  did 
not  lose  his  right  to  the  securities  by  returning  them  to  the 
borrower,  when  he  did  not  receive  a  check  or  other  securi- 
ties to  replace  them.^ 

So  also  where  shares  have  been  sold  and  the  purchase 
money  paid  at  the  transfer  under  the  usages  of  the  Stock 
Exchange,  the  seller  is  not  liable  although  the  company 
subsequently  declines  to  register  the  transfer.^ 

This  decision  was  followed  in  Casey  vs.  Bentley,"*  where, 
in  a  similar  state  of  facts,  specific  performance,  or  a  rescis- 
sion of  the  contract,  was  sought  by  the  vendor.  The 
authorities  are  fully  discussed,  and  the  court  (Fitzgibbon, 
L.  J.,  dissentiente)  held  that  as  the  sale  took  place  subject 
to  the  usages  of  the  Dublin  Stock  Exchange,  "which  were 

'  Humfrey  a's.  Dale,  7  El.  &  Bl.  ^  London    Founders    Association 

266;  Thomson  vs.  Davenport,  9  B.  vs.    Clarke,    57    L.   J.   Q.    B.    291; 

&C.7S;Pennellvs  Alexander,  3  El.  following  Stray  vs.  Russell,  1  E.  & 

&  Bl.  77,  288.  E.  888. 

2  Burba  vs.  Ricardo,  1  C.  &  E.  *  (1902)  1  Ir.  R.  376. 
478. 


Usages  of  Stoek-brokers  held  Binding.         445 

similar  to  those  of  the  London  Exchange,  the  ph\intiflf  was 
entitled  to  neither,  although  if  the  sale  took  place  outside 
the  Exchange,  she  should  have  judgment  for  rescission,  as 
the  company  refused  to  register  the  vendee.  The  result  of 
the  decision  was  that  the  plaintiff  became  a  trustee  for  the 
purchaser,  with  right  of  indemnity  to  the  vendor  by  the 
defendant  against  calls. 

In  Ward  in  re '  it  was  decided  that  the  amount  due  by 
a  defaulter  to  a  Stock  PLxchange  creditor  under  its  rules  is 
a  liquidated  sum  within  the  meaning  of  the  Bankruptcy 
Act,  and  will  support  a  bankruptcy  petition  by  the  cred- 
itor, and  in  Ratcliffe  vs.  Mendelsohn,'^  a  defaulting  Broker, 
was  held  liable  to  stock  jobbers  for  the  difference  between 
"  hammer  "  and  contract  prices,  as  the  jobbers  under  the 
rules  were  bound  to  hand  the  official  assignee  the  amounts 
received  by  them  on  completion  of  the  contracts.^ 

A  rule  of  the  London  Stock  Exchange  which  provided 
that  the  seller  of  shares  of  stock  is  responsible  for  the  gen- 
uineness of  all  documents  delivered,  and  for  such  dividends 
as  may  be  received  until  reasonable  time  has  been  allowed  to 
the  transferee  to  execute  and  lodge  the  same  for  verification 
and  registration,  and  that  when  an  official  certificate  of  regis- 
tration has  be<m  issued,  the  committee  will  not  (unless  bad 
faith  is  imputed  to  the  seller)  take  cognizance  of  anj'  subse- 
quent dispute  as  to  title  ujitil  the  legal  issue  has  been  decided, 
was  held  to  be  reasonal>le  in  Smith  vs.  Keynolds,*  in  which 
case  a  principal  was  held  bound  t(i  indemnify  his  I^ioker 
who,  undt.-r  a  resolution  of  the  eomniittee,  was  obliged  to 
make   gocxl   a   loss  arising   fioin   a    forged    transfer.     So 

•52  L.  J.  Ch.  7.'J.  'Src   Kiiij;  vs.   Iluttoii   (I'.KKI),  2 

»  (1902)  2  K.  li.  653.  Q.  H.  505. 

*  GO  I..  T.  808. 


446  Stock-brokers  and  Stock  Exchanges. 

also  in  llarker  vs.  Edwards,'  rule  57  providing  that  the 
Stock  Exchange  in  all  dealings  will  only  recognize  its 
own  members,  and  Rule  11,  that  the  decision  of  the  commit- 
tee (as  to  questions  arising  out  of  the  contract)  was  to  be 
final,  were  held  to  be  reasonable  and  binding. 

A  commercial  and  Stock  Exchange  usage  to  treat  bearer 
bonds  as  negotiable  has  been  held  binding,  although  of  re- 
cent origin.^ 

When  a  Broker  becomes  a  defaulter,  and  the  Client,  for 
whom  the  Broker  has  sold  shares,  elects  to  complete  the 
transaction  on  his  own  account,  the  Client  is  not  entitled 
to  nominate  a  person  to  transfer  the  shares  to  the  jobber  to 
whom  sold,  the  usage  of  the  Stock  Exchange  not  per- 
mitting such  nomination,  as  the  effect  w^ould  be  to  substi- 
tute the  nominee  as  principal.^ 

In  Scott  vs.  Godfrey  *  a  custom  of  the  Stock  Exchange  by 
which  Brokers  lump  together  the  orders  of  their  Clients 
and  execute  them  by  means  of  one  contract  with  the  job- 
ber, was  established  to  the  satisfaction  of  the  jury,  and  in 
the  opinion  of  the  court  was  a  reasonable  one.  In  that  case 
the  jury  also  found  that  the  Client  gave  his  order  on  the 
terms  that  it  might  be  so  executed.  The  court  said  that  as 
to  the  latter   findinf]c  it  doubted  whether  there  was   evi- 


'  57  L.  J.  Q.  B.  147.  said  the  custom  was  now  so  uni- 

^  Bechuanaland  Exportation  Co.  versal  that  it  should  be  judicially 

vs.  London  Trading  Bank  (1898),  2  noticed).     See   Picker   vs.    London 

Q.  B.  G5S;  Runiball  vs.  Metropoli-  and  Count)^  Banking  Co.,  18  Q.  B. 

tan  Bank,  2  Q.  B.  D.  194;  London  D.  515;  Colonial  Bank  vs.  Cady,  15 

Joint    Stock    Bank    vs.    Simmons  App.  Cas.  267  (the  usage  must  be  an 

(1892),  .\pp.  Cas.  201;  Venables  vs.  English  one). 

Baring   Bros.    (1892),    3   Ch.    527;  '  Currie  vs.  Booth,   7  Com.  Cas. 

Bentinck   vs.   Bank   (1893).  2  Ch.  77;  rev'g  s.  c.  6  Com.  Cas.  74. 

120;  Edelstein  vs.  Schuler,  71  L.  J.  *  70  L.  J  K.  B.  954. 

K.  B.  572  (in  which  case  the  court 


Usages  of  Stock-brokers  held  Kiiuliiii?.         447 

dence  to  support  it,  but  it  was  imiiuiteiial,  as  the  Client 
gave  his  order  to  be  executed  according  to  the  usages  of  the 
Stock  Exchange.'  The  jury  also  found  that  there  \Yas  a 
custom  by  which  a  jobber  and  each  Client  of  the  Broker 
became  bound  to  each  other  to  carry  out  the  contract  ap- 
plicable to  the  particular  Client's  order.  The  court,  how- 
ever, did  not  think  the  evidence  established  the  latter 
custom,  nor  was  it  necessary  in  the  particular  instance,  as 
the  facts  themselves  established  privity. 

It  was  held  in  Stoneham  vs.  Wyman-  that,  having  refer- 
ence to  Rule  155  of  the  London  Stock  Exchange  rules,  if  a 
jobber  who  has  been  paid  in  full  his  diflferences  up  to  the 
date  of  the  default  of  a  Broker  with  whom  he  had  dealt, 
subsequently  recovers  from  the  Broker's  customer  a  larger 
sum,  he  is  bound  to  account  to  the  official  assignees  for  an 
amount  equal  to  that  which  he  has  already  received,  and 
the  rule  was  held  to  be  a  reasonable  one.  See  also  Davis 
vs.  Howard,  supra.'^ 

A  usage  of  the  Toronto  Stock  Exchange  that  all  trans- 
actions must  be  "settled  "  on  the  following  day,  or,  if  Sat- 
urday intervenes,  on  the  following  ^londay,  has,  in  I'oultbee 
vs.  Cirowski,^  been  held  reasonable,  in  which  case  it  was 
also  held  that  the  word  "settled"  meant  the  completion 
of  the  transaction,  and  if  the  jxirchasing  Broker  docs  not 
disclose  his  principal  on  the  <lay  of  settlement,  he  incurs  a 
personal  responsibility. 

'  See  p.  129.  *  29  Can.  S.  C.  51;  21  OiU.  .\i)i> 

'6Com.  Ca«.  171.  502. 

»L.  R.  24Q.  B.  D.  691. 


448  Stock-brokers  and  Stock  Exchanges. 

111.  Cases  in  which  Usages  have  been  Rejected. 

(a.)   In  the    United  States. 

There  are  in  the  United  States  a  number  of  cases  arising 
out  of  transactions  in  stocks  in  which  the  usages  of  Brokers 
have  been  rejected.  A  close  examination  of  some  of  these 
decisions,  however,  shows  that  in  many  instances  they  are 
utterly  irreconcilable  with  the  rules  which  we  have  laid 
down,  as  well  as  with  the  theory  upon  which  usage  is 
admitted  in  evidence. 

Beginning  with  the  cases  in  the  State  of  Kew  York,  we 
find  the  well-known  case  of  Allen  vs.  Dykers.^  In  that 
case  it  appeared  that  A.  borrowed  of  D.,  a  Stock-broker,  a 
certain  sum  of  money,  for  which  he  placed  in  his  hands  as 
collateral  security  certain  bank  stock,  at  the  same  time 
giving  to  the  Broker  a  promissory  note  agreeing  to  pay  tlie 
loan  at  a  time  stated,  and,  in  default,  empowering  the 
Broker  to  sell  the  same  at  the  Board  of  Brokers.  The 
Broker  immediately  transferred  the  stock  into  his  own 
name,  and,  before  the  maturity  of  the  note,  pledged  or  parted 
with  the  same. 

In  defence  of  an  action  against  the  Broker,  brought  to 
recover  the  difference  between  the  value  of  the  stock  and 
the  money  loaned,  he  offered  to  prove  that,  when  Brokers 
took  assignments  of  stocks  as  collateral  security  for  the 
money  loaned,  it  was  not  the  custom  to  retain  the  stocks  in 
specie,  but  to  transfer  it  by  hypothecation  or  otherwise,  if 
they  thought  proper;  and,  on  payment  or  tender  of  the 
principal  debt,  to  return  to  the  debtor  an  equal  quantity  of 
the  same  kind  of  stock,  and  that  this  custom  was  known  to 
the  plaintiff  when  the  transaction  was  made.    The  court  held 

»  3  HiU,  593;  aff'd  7  id.  497 


Cases  in  which  Usages  have  been  Rejected.     449 

that  this  evidence  was  illegal  ami  properly  ruled  out.  The 
Brokers  proved  that  from  the  date  of  the  note  until  after 
it  fell  due  they  had  a  larger  quantity  of  stock  than  that 
mentioned  in  the  note  ;  but  it  appeared  that  all  of  this 
stock,  except  seventy -two  shares,  stood  in  the  names  of  per- 
sons to  whom  it  had  been  pledged  as  collateral  security  for 
various  loans  made  to  defendants,  the  Brokers.  The  court 
said  :  "  The  defendants  being  Stock-brokers  and  dealers  in 
stock,  their  counsel  offered  to  prove  on  the  trial  that  it  was 
the  usage,  when  stock  was  transferred  to  such  dealers  by 
way  of  collateral  security,  not  to  hold  it  specifically,  but  to 
transfer  it  by  hypothecation  or  otherwise,  at  pleasure,  and, 
on  payment  or  tender  of  the  money  advanced,  to  return  an 
equal  quantity  of  the  same  kind  of  stock ;  also  that  this 
usage  was  general,  and  known  to  the  agent  who  made  the 
loan  in  question.  The  object  of  the  offer  was  to  lay  the 
foundation  for  insisting  that  the  usage  should  be  regarded 
as  incorporated  in  and  forming  part  and  parcel  of  the  agree- 
ment, thus  making  the  latter  import  a  consent  on  the  part 
of  the  plaintiff  that  the  defendants  might  use  the  stock 
durinfj  the  runniiio:  of  tlie  loan,  the  same  as  if  tliev  were 
the  absolute  owners.  It  in  not  necessary  to  determine  tchat 
effect  wouhl  he  due  to  such  j)roof  in  the  case  of  a  simph 
pled<je^  as  collateral  security  u^ithout  any  further  agreement. 
P<jssib!y  the  known  usage  in  liUe  cases  might  bo  consiilered 
as  attachiiiir  itself  to  the  tnmsaclioii,  and  conslitiitinLr  a 
part  of  it.  l>ut  whci-n  tin*  parlirs  have  chosen  to  jnescribo 
f(jr  themselves  the  terms  and  conditions  of  the  loan,  they 
must  be  held  to  al)i(le  by  them,  and  we  are  especially 
bound  U)  refuse  effect  tf)  any  general  or  paiticiilar  usjig«i 
when  in  direct  contraventi<»n  of  the  fair  and  legal  import  of 
a  written  contract." 
29 


460  Stock-brokers  and  Stock  Exchanges. 

The  ground  uj)()n  which  the  court  rested  its  judgment  in 
this  case — viz.,  tliat  the  usage  in  question  conflicted  with 
the  terms  of  the  contract — is  perfectly  sound.  But  did  the 
usage  conflict  with  the  written  contract?  There  was 
nothing  said  in  the  contract  as  to  what  disposition  miglit  be 
made  of  the  stock  during  the  pendency  of  the  loan  ;  but  the 
argument  of  the  learned  judge  delivering  the  oj)inion  was 
that  it  Avas  to  be  inferred,  from  the  language  contained  in 
it,  that  no  disposition  could  be  made  of  the  same  by  the 
pledgee,  upon  the  maxim  Expressio  unius  est  cxclusio  alte- 
rius.  With  the  utmost  deference  for  the  opinions  of  Chief- 
justice  Nelson,  it  seems  to  us  that,  in  tlie  absence  of  express 
provision  to  the  contrary,  the  usage  mentioned  should  have 
been  held  operative.  The  knowledge  of  the  usage  made  it 
a  part  of  the  contract,  and  there  is  no  room  for  the  applica- 
tion of  the  niaxim.  The  court  sought  to  distinguish  the 
case  from  Nourse  vs.  Prime,'  on  the  ground  that  in  the 
latter  case  the  Stock-brokers  proved  that  they  had  always 
on  hand  a  number  of  shares  equal  to  the  amount  pledged  with 
them,  whereas  in  the  present  case  there  was  no  such  proof. 
It  is  very  difficult,  however,  Avhen  the  facts  of  both  cases  are 
carefully  anal3'zed,  to  reconcile  them ;  for  it  did  appear  in 
Allen  vs.  Dykers  that  the  Brokers  were,  during  the  existence 
of  the  pledge,  the  owners  of  more  than  the  number  of 
shares  pledged  with  them.  The  fact  that  the  Stock-brokers 
had  pledged,  for  the  purposes  of  their  business,  nearly  all 
of  the  particular  stock  held  by  them  does  not  affect  the 
question,  because  the  Brokers  could  have  repossessed  them- 
selves of  it  by  paying  off  the  loan. 

The  doctrine  of  Allen  vs.  Dykers  does  not  seem  to  have 

'  4  Johns.  Ch.  490;  7  id.  69. 


Cases  ill  which  Usages  have  been  Rejected.     451 

been  very  heartily  accepted  by  the  Court  of  Appeals  in  the 
subsequent  case  of  Ilorton  vs.  Morgan  ; '  for  although  it  was 
quoted  by  counsel  in  the  argument,"  it  was  not  mentioned 
in  the  opinion  ;  and  the  court  seems  to  have  regarded  the 
question,  which  was  apparently  settled  in  Allen  vs.  Dykers, 
as  still  open,  by  saying,  ''  It  is  unnecessary  to  pass  upon 
the  rulino'  bv  which  evidence  was  admitted  to  show  the 
custom  of  Brokers  to  sell  and  hvpothecate  stock  hold  by 
them  as  security  on  advances,  and  we  do  not  give  any 
judgment  upon  that  question."  Yet  thecase  has  never  been 
directly  ovei'ruled. 

It  seems  to  us  that  there  can  be  no  substantial  reason  to 
charge  a  pledgee  with  a  conversion  of  securities  for  parting 
with  or  repledging  the  same,  where  he  can  establish  that  the 
usages  of  Stock-brokers,  and  the  peculiar  nature  of  their  busi- 
ness, known  to  the  pledgor,  permits  and  makes  such  a  prac- 
tice necessary;  and  where,  upon  the  ex})iration  of  the  loan, 
or  upon  demand,  as  the  case  may  be,  the  pledgee  is  readv  to 
deliver  to  the  pledgor  shares  of  the  identical  character  de- 
posited with  him.^ 

'  19  X.  Y.  170.  sell  commercial  paper  pledged  ixs 
'See  Brief  of  Counsel,  X.  Y.  Ct.  security  for  a  loan,  at  private  sali-, 
of  .\pp-  Dec,  on  file  in  X.  Y.  Law  and  for  the  best  price  that  could  l)c 
Inst.  obtained,  after  demand  of  payment 
•See,  as  sugtainin^  these  views,  and  notice  that  such  s;de  would  in- 
Horton  vs.  Morgan,  19  X.  Y.  170;  made  in  ca.se  of  default  The  court 
Lawrence  vs.  Maxwell,  53  id.  19;  .see  said  that  such  a  custom,  if  it  exist- 
alacj  Ch.  IIL  p.  2.50.  On  the  other  ed,  would  be  illegal  and  void.  See 
hand,  a«  sustaining  Allen  vs.  Dy-  also  Transcontinental  Co.  vs.  Mil- 
kers, nee  Taylor  vs.  Ketchum,  3.')  mers,  20  Ked.  Heji.  717;  Jones  on 
How  (X.  Y.)  Pr.  289;alwoCurrie  vs.  Pledges,  2d  eti.  p.  MS  et  sc<i.,  ami 
Smith,  4  X.  Y.  I.^k  Obs.  .313;  cases  cited.  In  .Mien  vs  Dubois. 
Wheeler  vs.  Xewbould.  10  X  Y  117  Mich  11.'),  it  was  hefd  (hat  in 
.393,  where  the  court  held  that  evi-  the  ca.se  of  collateral.  ple<lue<l  to  se- 
dcnce  waw  inaflmiiwible  of  a  local  cure  a  loan,  the  phvlnor  is  entitle<l 
UMa^e  in  the  city  of  Xow  York  to  (o  a  retijrn  <>f  the  identical  shares 


452  Stock-brokers  and  Stock  Exchanges. 

The  next  cuse  which  we  shall  notice  is  the  familiar  one  of 
Markhani  vs.  Jaiuloii.'  "We  have  already  criticised  this  case 
in  this  chapter  in  connection  with  the  question  of  usage,'^ 
and  it  is  unnecessary  to  devote  much  space  to  it  here.  In 
that  case  the  defen(hints,  in  answer  t<j  an  action  for  the 
conversion  of  certain  stocks  which  they  were  "  carr^'ing  "  for 
the  plaintiff  on  margin,  offered  to  prove  the  existence  of  a 
custom  in  the  city  of  New  Yoi'k  between  Brokers  and  their 
Clients  b\'  which  Brokers  have  the  right  to  sell  out  the 
Clients'  stocks  on  the  exhaustion  of  the  margin.  The  court, 
in  commenting  upon  such  evidence,  said :  "  This  was  an 
offer  not  to  explain  the  meaning  of  particular  tcruis,  or  to 
})rove  attending  circumstances  to  enable  the  court  to  con- 
strue the  agreement,  but  to  change  the  rights  of  the  parties 
to  a  contract.  By  the  law,  as  T  have  interpreted  it,  the 
customer  did  not  lose  the  title  to  his  stock  by  any  process 
less  than  a  sale  upon  reasonable  notice,  or  by  judicial  pro- 
ceedinirs.  The  Broker  has  no  right  to  sell  without  such 
a  notice.  A  practice  or  custom  to  do  otherwise  would 
have  no  more  force  than  a  custom  to  protest  notes  on  the 
first  day  of  grace,  or  a  custom  of  Brokers  not  to  jmrchase  the 
shares  at  all,  in  a  case  like  the  present,  but  to  content  them- 
selves with  a  menKM'andum  or  enti-y  in  their  books  of  the 
contract  made  with  tlieir  customei'.  Such  practice,  in  each 
case,  would  he  in  hostility  to  the  terms  of  the  contract,  an 
attempt  to  cliange  its  obligations,  and  Avould  be  void.  The 
proof  could  not  therefore  be  legally  given." 

pledged   if  he   can   identify  them,  Pa.  St.  80;  Hubbell  vs.  Drexel,  11 

ahliough  if  a  Broker  buys  stock  and  Fed.  Rep.  115. 

holds  it  as  security  for  monej's  ad-  *  41   N.  Y.  245.     For  historj'  of 

vanced,  a  sufficient  number  of  the  this  case,  see  Ch.  III.  p.   191,  and 

same  kind  of  shares  need  only  Ije  Ch.  on  "Measure  of  Damages." 

returned.     See  Stuart  vs.  Bigler,  9S  *  Ante,  p.  418. 


Cases  iu  which  Usages  have  been  Rejected.     453 

The  objections  to  the  conclusious  reached  iu  this  case,  as 
above  set  forth,  may  be  thus  sammarized. 

I.  There  is  no  doubt  but  that  the  "  notice  "  alluded  to 
could  have  been  waived  by  express  agreement.'  A  knowl- 
edire  of  the  existence  of  a  usa^je  to  sell  without  notice  would 
have  the  same  etfect,  and  should  be  regarded  as  incorporated 
in  the  contract.- 

II.  Under  the  circumstances  disclosed,  this  usage  was  a 
perfectly  reasonable  one,  and  it  is  eiToneous  to  consider  the 
case  as  if  it  were  one  of  pure  bailment  arising  between 
pledgor  and  pledgee. 

III.  The  question  has  been  settled  differently  in  Enirland.^ 
There  are  but  two  other  cases  in  the  State  of  Xew  York 

upon  this  question  of  usage,  to  which  we  deem  it  necessary 
to  call  special  attention — viz.,  Spear  vs.  Ilart,^  and  Lombardo 
vs.  Case.^  In  Spear  vs.  Hart,  the  court  held,  in  accordance 
with  the  general  rule  upon  the  subject,  that  on  a  sale  of 
stock  delivei'able  at  a  future  day  at  the  option  of  the  seller, 
a  dividend  declared  before  the  sale,  but  not  payable  until 
after  the  day  fixed  for  the  delivery  of  the  stock,  belongs  to 
the  seller,  and  does  not  pass  to  the  buyer  under  the  contract. 
The  effect  of  this  rule  was  sought  to  be  changed  by  the  in- 
troduction of  a  usage  of  Wall  Street.  This  evidence  was 
ruled  out. 

The  defendant  had  agreed  to  deliver  certain  railway  stock, 
seller's  option,  in  ten  days  from  March  28,  1865.  This 
matured  on  the  7th  of  April.  On  the  2:5d  of  .March  the 
railroad  company  declared  a  dividend  of  live  per  cent,  pay- 

'  Hukcr  VH.  Drake.  GG  .\.  Y.  FAH.  kcl  vh.  KIIIh,  :i2  l.c«.  Int.  SJ;  s.  «•.  10 

'See  ul«o  mite,  p.  4'Jl.  I'hilii.  ( I'li.)  .S7.'>;  see  uI.soC«)rl)ett  v.s. 

*  Lacey    v«.     Hill     (Scriiniieour'H  I'luierwocxl,  JS.nil.  .'VJI. 

Claim),  F..  R.  H  Cli.  .Vpp.  <»21,  iind  ' :{  Koh.  JJO. 

practically    in    IVmi.sylvaiiia       ("ol-  '  :5()  How.  (N.  Y.)  I'r    1 17 


454  Stock-brokers  and  Stock  Kxcliaii^es. 

able  on  the  loth  of  April,  and  closed  their  transfer-books  on 
the  31st  of  March.  The  court,  through  Monell,  J.,  said  : 
"I  do  not  think  such  a  custom  could  alter  well-settled  prin- 
ci]ilos  applicable  to  the  law  of  contracts.  .  .  .  l)Ut  under  a 
contract  to  sell  lOO  shares  of  stock,  a  custom  that  something 
more  passes  to  the  purchaser  cannot  be  allowed.  It  varies 
the  agreement  by  adding  to  it,  and  it  would  not  be  merely 
an  explanation  or  interpretation  of  it." 

The  facts  of  this  case  are  very  meagrely  reported,  and  it 
does  not  appear  whether  the  sale  was  made  on  the  Stock 
Exchange.  The  invariable  rule  or  usage  of  Stock-brokers  is 
to  sell  stock  with  the  "  dividend  on,"  until  the  books  are 
closed,  after  which  event  the  stock  sells  "  ex  dividend."  ' 

Under  ordinary  circumstances,  therefore,  the  purchaser 
in  the  above  case  would  have  been  entitled  to  all  dividends 
on  the  stock  at  the  time  of  the  closing  of  the  books  on  the 
31st  of  March,  the  sale  having  been  made  before  that  time, 
that  fact  actually  entering  into  and  affecting  the  market  price 
of  the  stock.  And,  according  to  the  views  which  we  have 
already  expressed,  such  a  usage  is  perfectly  valid,  because  it 
becomes  a  part  of  the  contract  of  the  parties.  Persons  enter- 
ing into  agreements  through  Brokers  understand  that  sales 
of  stock  made  at  the  Board  of  Brokers  at  any  time  before 
the  day  fixed  for  the  closing  of  the  transfer-books  of  the 
company,  declaring  a  dividend  payable  at  a  future  day, 
carry  with  them  the  dividend  so  declared,  and  the  price  is 
regulated  accordingly.  After  the  books  are  closed,  the  sales 
are  understood  to  be  "ex  dividend,"  and  the  price  is  accord- 
ingly affected  by  the  fact  that  the  seller  retains  and  is  to 
collect  the  dividend.^ 

^  See  Art.  XXXII.,  Sec.  1,  Const.  '  These  usages  were  recognized  in 
N.  Y.  Stock  Exchange.  the  case  of  Hill  vs.  Xewichawanick 


Cases  iu  which  Usages  have  been  Rejected.     4oo 

So,  in  Lombardo  vs.  Case,  the  contract  made  by  a  Stock- 
broker was  as  follows:  "  Xew  York,  October  S,  18G3.  For 
value  received,  the  bearer  may  call  on  me  for  one  thousand 
shares  of  the  stock  of  the  Cleveland  and  Pittsburgh  Railroad 
Company,  at  one  hundred  and  seventeen  (117)  per  cent,  any 
time  in  six  months  from  date,  without  interest.  The  bearer 
is  entitled  to  all  dividends  declared  dui'ing  the  time  to  half- 
past  one  p.  M.  each  day.''  It  was  held,  on  demurrer  to  the 
complaint  for  a  dividend  declared  prior  to  the  making  of  the 
contract,  that  an  alleged  custoin  among  Brokers  and  dealers 
in  stocks,  that  the  words  "  dividends  or  surplus  dividends  "  in 
the  contract  Avere  intended  to  mean  dividends  declared  on 
the  stock  without  regard  to  whether  they  hud  been  announced 
hefore  or  after  the  date  of  the  contraxit^  provided  that  on  the 
day  the  contract  was  made  the  stock  was  selling  in  the 
market  "  dividend  on^''  and  not  "  ex  dividend,"  would  not 
be  allowed  to  be  proved  on  the  trial,  for  the  reason  that 
effect  could  not  be  given  to  the  custom  without  making  a 
new  contract  between  the  parties,  as  six  months  from  date 
could  not  mean  or  include  "  a  day  or  two  before  date."  Con- 
sequently, a  dividend  of  four  per  cent,  which  had  been  de- 
clared and  announced  at  the  time  of  the  making  of  the  con- 
tract, could  n<jt  l^e  recovered  by  the  })urchaser,  although  the 
stock  was  then  selling  "dividend  on." ' 

In  Harris  vs.  Tumbridge,''  it  was  held  proper  to  exclude 
proof  that  it  was  common  for  parties  purchasing"  straddh's  " 

Co.,  8  Hun  (N.  Y.),  459,  aff'd  71  N.  usaRc  was  nLsr)  hold  properly  rejected 

Y.  593.     But  Boe  Jones  v.s.  R.  Co.,  when  the  oontnict  wils  made  out- 

57  .v.  Y.  190.  Hide  of  tlio  Stock  Exchanup,  and  tlio 

'  I/Onihardf)  vh.  Cuhc,  30  How.  (.V.  Broker  was  not  a  niiMnlxT  tluTcof. 

Y.)  Pr.  117;  Hopper  vh.  Saue,  12  N.  Id. 

Y.  W'erkh,  D<g  7H;  k.  c  on  n«w  trial,  '  ,S3  .\.  Y.  92. 
112   .\.    Y.    5.30.     Evidence  of  the 


45G  Stoik-brokers  and  Stock  Exchaiii^es. 

to  operate  in  stocks,  holding  tiie  sti'addle  as  security  ;  but 
no  custom  or  usage  such  as  to  modify  the  contract,  or  be- 
come interwoven  with  its  terms,  was  in  any  manner  shown 
in  that  case.  The  court  said  that  "  a  custom  or  usage  which 
binds  the  parties  to  a  contract  does  so  only  upon  the  principle 
either  that  they  have  knowledge  of  its  existence,  or  that  it 
is  so  general  that  they  must  be  supposed  to  have  contracted 
with  reference  to  it." 

In  closing  this  criticism  of  the  New  York  cases,  in  which 
the  usages  of  Stock-brokers  have  been  rejected,  we  are  com- 
pelled to  say  that  they  are  far  from  being  satisfactory. 

The  usages  of  Brokers,  bankers,  and  others  cannot  be  set 
up  to  defeat  the  well-settled  and  universally  applied  pi-in- 
ciple  of  the  commercial  law  that  the  purchaser  of  negotiable 
paper  past  due  takes  it  subject  to  the  equities  of  other  par- 
ties, and  can  acquire  no  better  title  than  his  transferror.^ 
In  the  last  cited  case  a  number  of  United  States  Treasury 
notes  had  been  stolen  from  an  express  company  and  pur- 
chased by  a  firm  of  bankers,  after  the  date  at  which  they 
were  payable  or  convertible  into  bonds.  Evidence  was  in- 
troduced to  show  that  securities  of  the  kind  in  question 
continued  to  be  bought  and  sold  by  bankers  and  Brokers 
after  they  had  become  due.  The  court  held  that  this  fact 
did  not  avail  to  alter  the  law.  "  Bankers,  Brokers,  and 
others,"  said  the  court,  "  cannot,  as  was  attempted  in  this 
case,  establish  by  proof  a  usage  or  custom,  in  dealing  in  such 
paper,  which  in  their  own  interest  contravenes  the  estab- 
lished commercial  law.  If  they  have  been  in  the  habit  of 
disregarding  that  law,  this  does  not  relieve  them  from  the 
consequences,  nor  establish  a  different  law." 

1  Vermilye  vs.  Adams  Exp.  Co.,  21  Wall.  139. 


Cases  in  which  Usas:es  have  heeii  Hejected.     4o7 

A  close  examination  of  this  case  will  show,  hi)\vever,  that 
the  evidence  offered  did  not  amount  to  a  proof  of  a  general 
usage  of  Bankers  and  Brokers  to  deal  in  negotiable  paper 
after  it  was  due,  and  to  treat  it  as  not  due,  and  the  case 
should  be  confined  to  the  peculiar  facts  there  stated.  More- 
over, there  seems  to  be  an  insuperable  objection  to  such  a 
usage,  as  it  would  operate  to  defeat  the  I'ights  of  third  per- 
sons not  parties  to  it.  Usage  is  onl}'-  admissible  as  forming 
a  part  of  a  contract.  In  the  case  in  question  the  dispute 
was  between  adverse  claimants  for  the  possession  of  certain 
personal  property,  the  Treasury  notes,  and  it  is  not  very 
clear  how  such  a  usage  as  that  invoked  could  avail  in  such 
a  controversy.^ 

The  subject  of  usages  was  considered  in  the  case  of  Evans 
vs.  AValn,-  by  the  Supreme  Court  of  Pennsylvania.  There 
the  plaintiffs  em])loyed  M.  6c  Bro.,  Brokers,  in  Philadelphia, 
to  sell  certain  stock  fc^r  them.  ^l.  &  Bro.  in  turn  employed 
one  W.,  another  Bi-oker  in  Philadel[)hia,  to  sell  the  stock, 
and  the  sale  was  eventually  made  through  the  defendants, 
Stock-brokers  in  Xew  York.  A\'.  IxMng  in  debt  to  the  de- 
fendants, and  becoming  insolvent,  the  latter  deducted  the 
amount  of  such  indebtedness  from  the  proceeds  of  tiie  sale 
of  pl:iintiir.s'  stock,  and  remitted  the  l)alance.     In  an  action 

'As  certificates  of  stock  are  not  .\  custom  of  the  New  York  Cotton 
nejiotiahle,  a  custom  of  Stock-  Exchange  that  a  liroker  may  sell 
brokers  to  the  contrary  caimot  he  before  the  contract  matures,  when 
proved.  E^st  Birm'niKham  Laiul  the  principal  does  not  advance  mar- 
Co.  V.S.  DennLs,  2  L.  K.  A.  H.'iG,  and  ^•"•''1  dot's  not  liind  the  latter  unless 
caKca  cited.  A  custom  of  the  I'e-  known  tohim.  Ithikemore  vs.  Ilev- 
troleum  Exchani;e  tliat  all  deliv-  man,  2'A  Fed.  Krp  (VJK.  See  also 
cries  of  oil  should  he  of  oil  that  had  Ilintrins  vs.  McCrea,  2.'J  Im'<1  Hep 
storage  chari:es  paid  thereon,  <1<k-s  7s2;  1  Wt  V> .  S.  071;  Dillard  va. 
not,  in  the  al>sen<e  of  contrart,  hind  Pnton,  19  Fe<l.  itep.  019. 
one  not  a  mcinher.  Wauch  vs  Sea-  '  71  I'a.  St.  09. 
board  Dank,  51  .N .  V.  Suj^er.  Ct.  283. 


458  Stock-brokers  niid  Slock   Kxclianj^cs. 

by  the  pliiintitrs  to  recover  the  full  purchase-iiKmey,  it  was 
shown  that  the  defendants  knew  that  the  stock  belonged 
to  the  i)laintiffs,  and  that  AV.  was  acting  as  Stock-broker 
for  them.  The  defendants  offered  to  prove  a  custom  by 
which  Brokers  keep  transactions  with  one  party  all  in  one 
account,  and  remit  the  balance.  This  was  ruled  out.  The 
appellate  court  held  that  the  ruling  was  correct,  and  that 
such  a  custom,  if  proved,  would  have  constituted  no  defence, 
as  the  defendants  had  no  right  to  credit  AV.'s  account  with 
the  proceeds  of  the  stock :  he  was  not  the  owner  of  it,  and 
had  no  title  or  claim  to  its  proceeds  ;  the  defendants  had 
not  received  the  stock  from  AV.,  and  they  were  not  bound 
to  account  to  him  for  the  price  at  which  it  was  sold. 

As  it  was  not  shown  that  the  account  of  "VV.  was  credited 
with  the  proceeds,  the  court  held  that  it  was  clear  the  case 
was  not  \vithin  the  operation  of  the  custom,  if  any  such 
existed.  The  court,  in  conclusion,  based  its  reason  for  re- 
jecting such  evidence  upon  the  following  ground :  "  If  there 
is  a  custom  among  Stock-brokers,  when  dealing  with  others, 
to  appropriate  money  belonging  to  the  principal  to  the  pay- 
ment of  his  Broker's  indebtedness,  the  sooner  it  is  abolished 
the  better — Malus  nsus  est  aholendus.  A  custom  so  iniqui- 
tous can  never  obtain  the  force  or  sanction  of  law,  and  the 
marvel  is  that  it  should  be  set  up  as  a  defence  in  this  ac- 
tion." It  will  be  observed  that  not  even  the  express  agree- 
ment of  TV.  could  have  produced  the  result  claimed  for  by 
defendants.^ 

*  To     same     effect,     Fisher     vs.  tive    instructions     (Barksdale    vs. 

Brown,  104  Mass.  259;  Pearson  vs.  Brown,  1  Xott.  &  M.  [S.   C]  517). 

Scott,  38  L.  T.  (n.  s.)  747;  see  also  In  Blackburn  vs.  Mason,  68  Law  T. 

Sweeting  vs.  Pearce,  7  C.  B.  (n.  s.)  510,   this  custom  was  held   unrea- 

449;  and  no  usage  will  authorize  a  sonablc,    and    not    binding    on    the 

factor  or  agent  to  depart  from  posi-  client  unless  he  agreed  to  be  bound 


Cases  in  which  Usages  have  been  Rejected.     459 

In  another  Pennsylvania  case '  the  custom  averred  was 
rejected,  but  not  on  its  merits.  Plaintiff  bought  from  de- 
fendants (bankers  and  Brokers  in  Philadelphia)  certain 
stocks  and  bonds,  with  an  option  to  plaintiff  at  the  end  of 
a  year  from  the  date  of  the  contract,  April  21,  1890,  to  re- 
sell them  at  cost  to  defendants,  who  subsequently  made  an 
assignment.  Plaintiff  exercised  his  option  on  April  22, 
1801,  and  it  was  held  that  the  general  rule  that  "  one 
year  from  the  date  of  the  contract ''  was  to  be  computed 
by  excluding  the  day  of  the  date,  could  not  be  modified  by 
an  averment  by  defendants  on  information  and  belief  of  a 
good  general  custom  in  Xew  York,  Boston  and  Philadelphia, 
known  to  dealers  in  bonds  and  stocks,  that  an  option  to  sell 
at  the  end  of  a  given  period  expired  on  the  last  day  of  such 
period,  and  that  therefore  plaintiff  w^as  one  day  late,  as  the 
defendants  were  bankers  and  Brokers,  who  presumably  knew 
the  customs  of  such  business,  but  they  did  not  allege  such 
custom  of  their  own  knowledge,  nor  their  ability  to  prove  it, 
and  moreover  the  custom  was  alleged  to  be  known  to  dealers 
in  bonds  and  stocks,  without  saying  that  plaintiff  was  such 
a  dealer.  But,  waiving  these  defects,  the  custom  alleged  was 
as  to  an  option  to  sell  at  the  end  of  any  given  period,  whereas 
the  contract  provided  for  an  option  to  demand  a  rescission 

by  it,  and  in  Crossley  vs.  Ma^niac,  Evans  vs.   Wain,  supra,  the  court 

(1893)  1  Ch.  594,  the  evidence  failed  held  defendant  Brokers  liable  for  a 

to  prove  this  custom,  and  the  court  conversion,  iniLsinuch  as  they  were 

said  that,  even  if  it  were  proved,  it  aware    that    their    correspondent's 

could  not  Ijind  a  forei^rn  principal  client  wa-s  the  owner,  althouj^h,  if 

from  whom  the  London  Broker  re-  tliey  had  not  such  knowledge,  and 

ceive<l,  throu^^h  the  country  Broker,  as  a  blank  jLs>ij;nment  was  attached 

a    power    <>{    attorney    to    sell    his  1o  tlio  certificate,  they  would  not  l)e 

shares.     See     also     .\nderson      vs.  lial)le. 

Sutherland.    1.3   Times    L.    U.    UV.i.  '  Weld    vs.    Barker,    153   Pa.   St 

In  Ryman  vs.  Gerlach,  l.W  Pa.  St.  405;  20  Atl.  239. 
197,   in  a  state  of  facts  similar  to 


4H0  Stock-brokei-s  and  Stock  Excliaii^e8. 

of  a  sale  after  a  year  of  obligatory  i-etention  by  the  purchaser 
of  the  stocks  sold. 

Proof  of  a  local  custom  in  the  oil  trade,  to  regard  future 
sales  of  oil,  at  an  advance  of  the  market  price  at  the  time  of 
the  contract,  as  merely  to  be  settled  by  payment  of  differ- 
ences, cannot  be  allowed,  when  its  effect  will  be  to  vary  the 
terms  of  a  written  contract.' 

It  was  held  in  Commonwealth  vs.  Barrett,^  that  no  custom 
of  Brokers  can  legalize  fraud. 

^lassachusetts  furnishes  several  instances  where  the  usages 
of  Brokers  have  been  rejected.  In  Parsons  vs.  JMartin,'  which 
appears  to  be  the  earliest  reported  case  in  that  State  upon  the 
subject,  it  was  held  that  a  Broker  to  whom  a  certificate  of 
shares  in  a  corporation  were  intrusted  by  their  OAvner,  with 
written  directions  to  sell  under  circumstances  specified,  had 
no  right  to  transfer  the  shares  for  any  other  purpose,  to  the 
name  of  another  person  or  his  own  name,  and  that  evidence 
was  inadmissible  of  a  custom  among  Brokers  so  to  do ;  and 
the  owner  may  treat  such  transfer  as  a  sale,  and  recover  of 
the  Broker  the  market  price  of  the  shares  on  the  day  of  the 
transfer,  although  tlie  Broker  afterwards  tenders  him 
another  certificate  of  an  equal  number  of  such  shares,  which 
he  refuses  to  receive  and  does  not  retransfer  to  the  Broker. 

The  court  further  held  that  a  custom  among  Stock-brokers 
in  Boston,  permitting  a  Broker  to  make  a  sale  of  stock,  not 
on  account  of  plaintiff,  but  for  some  other  person,  using  plain- 
tiff's shares  for  that  purpose,  and  replacing  them  with  other 
shares  of  a  like  kind,  was  bad.  Xo  usage  or  custom  such  as 
that  which  defendant  attempted  to  show  could  affect  the  le- 
gal rights  of  the  parties;  nor,  if  fully  i^rovod,  would  the  law 

•Scofield    vs.    Blackmail.   17  W.        '  40  Leff.  Int.  (Pa.)  474. 
N.  C.  (Pa.)  518.  ='77  Mass.  111. 


Cases  in  wbieh  Usages  have  been  Rejected.     461 

sustain  or  tolei-ate  it.  Proof  of  usage  is  admissible  to  inter- 
pret the  meaning  of  the  language  of  the  contract,  or,  where 
its  meaning  is  equivocal  and  obscure,  to  ascertain  its  nature 
and  extent,  but  not  to  vary  its  terms  or  introduce  new  con- 
ditions, or  authorize  the  doing  of  acts  which  are  in  direct  cuii- 
traventlon  of  its  jf/'ovi/sions. 

"From  these  considerations,"  said  the  court,  "it  is  ob- 
vious, and,  indeed,  it  seems  to  be  a  necessary  consequence 
from  them,  tliat  the  general  proposition  stated  by  tlie  court, 
'  that  if  the  defendant  caused  the  shares  of  stock  belonffing: 
to  the  plaintiff  to  be  transferred  to  himself,  in  such  a  way 
and  under  such  circumstances  that  they  were  not  afterwards 
to  be  traced  or  distinguished  from  other  shares  held  by 
the  defendant,  such  a  transfei',  if  made  without  the  ]ilain- 
titf's  authority,  could  not  be  jiistilied  by  any  usage  to  that 
elTect  among  Brokers,'  was  correct.  And,  having  thus 
violated  his  duty  by  making  a  disposition  of  the  stock  which 
was  unauthorized  and  unjustilial)le,  he  became  immediately 
responsible  for  the  value  of  the  property  with  which  he  had 
been  intrusted.  It  was,  in  effect,  a  conversion  of  it  to  his  own 
use.  Itisnodefence  toachiiin  arisingundcr  an  unlawful  con- 
vei'sion  of  pro|)crty  by  such  an  unauthorized  })receedingas 
this,  that  the  defendant  was,  at  all  times  afterwards,  either 
actually  possessed  of,  or  had  the  means  of  immediately  obtain- 
ing, other  shares  of  stock  in  the  same  company  of  ecpial  value 
with  those  di.sposed  of,  which  he  was  ready  and  intended, 
whenever  called  uj)on,  to  suljslitute  for  those  belonging  to 
the  jdaintilf  which  he  had  disjMjsed  of.  Tiio  misappropria- 
tion had  already  taken  place,  the  wrong  had  been  done,  and 
the  right  to  :in  ;i(l<(pi;it(!  remedy  1i;m1  already  aecrued.  The 
shares  which  the  j)lainti(r  had  owned  ci.uM  n<t  longer  bo 
identified,  and   there   was  im  |treteiise,  therefore,  that  tlx-y 


462  Ntoek-brokers  and  Stock  Excliaiii^es. 

could  ever  be  restoivd  to  him.  JIo  was  not  bound  to  take 
others  in  their  stead,  but  was  entitled  to  recompense  for 
those  which  had  been  unlawfully  taken  from  him." 

We  have  set  out  thus  fully  the  views  of  the  court  in  this 
case  because,  although  the  general  result  reached  in  the  case 
may  be  correct,  this  reasoning  directly  conflicts  with  the 
New  York  cases,  in  which  it  is  held  that  a  Broker  j)urchas- 
ing  shares  on  margin,  or  speculativel}',  is  not  bound  to  keep 
on  hand  the  identical  stock  purchased,  but  that  he  fulfils  his 
duty  to  his  Client  by  having  ready  to  deliver,  upon  demand, 
similar  shares  of  stock — there  being  no  difference  between 
them,  one  share  being  equal  in  value  to  the  other.' 

In  Pickering  vs.  Demeritt'^  the  court  intimated  that  it 
would  be  very  difficult  to  support  a  usage  by  which  a  Broker 
employed  to  purchase  stock  might,  without  the  knowledge 
of  his  principal,  buy  the  stock  of  himself.  In  another  case^ 
it  was  held  that  a  certificate  of  stock  expressing  on  its  face 
to  be  "  transferable  only  on  the  books  of  the  company  by 
the  holder  thereof  in  person,  or  by  a  conveyance  in  writing 
recorded  on  said  books,  and  surrender  of  this  certificate,"  and 
transferred  in  blank  upon  its  back,  is  not  a  negotiable  instru- 
ment. The  certificate  was  in  the  name  of  "  E.  Carter, 
Trustee."  In  this  case  it  was  attempted  to  be  shown  that  it 
was  usual  with  dealers  in  the  stock  market  to  deliver,  by 
way  of  sale  or  ]iletlge,  certificates  of  stock  with  a  blank  trans- 
fer ujion  the  back  ;  that  it  is  usual  for  holders  of  certificates 
of  stock  transferred  in  blank  to  fiU  them  up  by  inserting  the 
name  of  some  person  as  transferee  or  purchaser ;  tiiat  it  is  a 
matter  of  common  occurrence  for  certificates  of  stock  to  be 

'  See  this  subject  discussed  in  Ch.  'Shaw  vs.  Spencer,  100  Mass. 
III.  p.  2.5'2.  382;  cited  and  approved  in  Fisher 

'  100  Mass.  416.  "   vs.  Brown,  104  id.  261. 


Cases  in  which  Usajyes  have  been  Rejected.     4(53 

issued  in  the  name  of  some  other  person  as  trustee  ;  that  cer- 
tificates of  stock  issued  to  a  designated  person  as  trustee  are 
constantly  bought  and  sold  in  the  stock  market  by  a  simple 
endorsement  of  the  certiiicate  by  the  person  named  as  the 
holder,  without  inquiry  as  to  the  authority  by  which,  or  to 
the  use  or  purpose  for  which,  the  transfer  was  made.  But 
the  judge,  at  the  trial,  ruled  that  the  propositions  were  im- 
material and  inadmissible,  and  the  ruling  was  sustained  on 
appeal.'  The  court  said  :  "  A  usage  to  disregard  one's  legal 
duty,  to  be  ignorant  of  a  rule  of  law,  and  to  act  as  if  it  did 
not  exist,  can  have  no  standing  in  the  courts." 

Again,  it  was  held  in  the  same  State  ^  that  the  order  of  a 
Client  to  a  Broker  to  buy  stock  deliverable  at  any  time,  at 
buyer's  option,  in  sixty  days,  does  not  authorize  the  Broker  to 
buy  the  stock  himself  at  thirty  days,  and  deliver  it  to  his  cus- 
tomer at  the  end  of  sixty  days  at  an  increased  price  and 
interest,  besides  the  usual  commissions,  and  that  a  usage  of 
Brokers  so  to  do  is  bad  ;  and  that  an  exchange  of  bought  and 
sold  notes  between  the  Broker  and  the  Client,  and  the  giv- 
ing of  his  note  b}-  the  latter  in  pa3'raent  for  the  stock,  in 

'  An  offer  to  prove  a  similar  cus-  licld  in  IJaiik  vs.  Taliaferro,  72  Md. 

torn  was  ruled  out  in  IV-iinsylvania  1(3!),  that  evidence  of  such  a  custom 

in  the  case  of  Aull  vs.  Colket,  2  \V.  wjts  properly  excluded,  as  no  .such 

N.  C.  .'i22;  .'i.'i  Le;:.  Int.  41;  compare  usaf^e  could  chaii^;e  the  le^al  chanic- 

with  these  authorities  the  English  ter  of  a  power  of  attorney  merely'  to 

ca.se  of  Goodwin  vs.  Kobarts,  L.  R.  .sell,  and  authorize  tlie  attorney  to 

10  Ex.  76,  where  it  is  held  that  ne-  pledge   the   securities   for   his   own 

KOtiability  may  be  established  l)y  debt,  a  result  not  contemplate*!  by 

usaRe.     And    see    also    Denny    vs.  the  party  who  executed  the  power. 

Lyon,  .38  Pa.  St.  9S,  where  the  cus-  And  in  .\llen  vs.  St.  I.ouis  National 

torn   was  held    vicious.     See,   how-  Hank,  120  V .  S.  20.  .-i  similar  u.sace 

ever,  contra,  I'ratt  vs.  Tilt,  2S  \.  J.  between  banks  and  lotton  Mrokers 

E^i-  479;  Jones  on  Plediies.  2d   ed.  in    St.    Louis    was    also     rejected, 

p.  487,  and   canes  cited.     And  we  .\nd  sec  Hank  vs.  Hunk,  L.  U.  20  Q. 

also   Ryman   vs.  Gcrlarh,   l.W  Pa.  B.  D.  232. 
St.    197.      Hut  it  ha-s  been  recentlv        '  Hav  vs    Holmes.  10.3  Mass   .306 


464  Stock-brokers  and  Stock  Exchanges. 

ignorance  of  the  Broker's  conduct,  was  not  a  ratification  of 
his  acts. 

The  court  said  :  "  The  usage  alleged  by  the  plaintiffs  to  ex- 
ist among  Stock-brokers  in  Boston  cannot  avail  them.  There 
are  many  forcible  objections  to  its  validity  ;  but  a  conclusive 
one  is,  that  it  is  against  i^oand polietj  and  good  morals.  It 
authorizes  the  Broker,  in  his  discretion,  to  disregard  his  in- 
structions, and,  instead  of  acting  solely  in  the  interests  of 
his  principal,  to  speculate  upon  the  transaction  for  his  own 
benefit.  It  creates  in  an  agent  an  interest  adverse  to  his 
principal,  and  is  inconsistent  with  his  duty  and  the  obliga- 
tions which  the  law  imposes  upon  him  when  he  enters  into 
the  contract  of  agency.  Such  a  usage,  unhaown  to  the  prin- 
cipal^ cannot  be  supported."  The  court  cited  the  earlier  case 
of  Pickering  vs.  Demeritt.^  While  the  result  reached  in  this 
case  may  be  correct,^  the  ground  upon  which  it  is  put  does 
not  seem  to  be  tenable,  for  the  court  intimates  that  if  the 
usage  had  been  known  to  the  principal  it  might  have  been 
supported  ;  yet  the  ground  of  its  rejection  is,  that  it  is  against 
sound  policy  and  good  morals.  If  the  usage  be  against  pub- 
lic policy,  or  contra  honos  onores,  the  courts  would  reject  it, 
whether  known  to  the  principal  or  not,  just  as  they  would 
reject  an  express  agreement  under  the  same  circumstances. 
The  result  of  such  a  usage  would  be  to  convert  a  Broker  into 
a  principal,  and  to  make  him  a  seller  instead  of  an  interme- 
diary. And  if  parties  agree,  and  all  the  circumstances  are 
fair  and  free  from  fraud,  tiiere  would  seem  to  be  no  element 
of  morals  or  public  policy  to  prevent  such  a  transaction. 
Agents  or  Brokers  may  deal  directly  with  their  principals 
the  same  as  third  persons,  and  it  is  only  where  the  Broker 

'  100  Mass.  416.  '  It  is  fully  sustained  in  Robinson 

vs.  MoIIett,  infra,  p.  471. 


Cases  ill  ^vbiili  Usages  have  been  Rejected.     465 

acts  in  a  dual  character  that  the  hiw  is  shocked  and  his 
transactions  vitiated. 

So  a  custom  of  Stock-brokers,  when  tliey  receive  an  order 
from  a  Client  to  })urchase  securities,  to  assume  it  them- 
selves, instead  of  making  contracts  with  third  j^ersons,  is 
inadmissible.' 

In  the  case  of  Oel ricks  vs.  Ford '  it  was  held  that  where 
there  was  a  written  contract  for  the  delivery  of  a  certain 
number  of  barrels  of  flour,  at  a  given  piice,  to  be  delivered 
within  a  named  time,  at  the  seller's  option,  and  evidence 
was  offered  by  the  purchaser  of  a  usage  existing  that  a 
margin  should  be  put  up,  the  court  below  was  right  in  re- 
fusing to  allow  this  evidence  to  go  to  the  jury,  because  it 
was  too  indefinite  and  uncertain  to  establish  a  usage. 

And  in  Clews  vs.  Jamieson  ^  a  rule  of  the  Chicago 
Stock  Exchange  by  which,  when  sales  of  the  same  kind  of 
securities  are  made  by  different  Brokers,  and  the  latter's 
accounts  are  balanced  by  other  transactions,  a  substitution 
of  buyer  and  seller  is  made,  and  that  the  principals  are  to 
conform  to  such  rule,  was  held  not  to  bind  a  principal  in  so 
far  as  to  compel  him  to  sell  at  a  lower  figure  than  that  at 
which  he  authorized  his  Broker  to  sell,  nor  to  compel  the 
purchaser  to  buy,  although  the  Brokers  would  be  bound  by 
the  nde.  In  Municipal  Investment  Co.  vs.  Industrial  & 
Gen.  Trust  Co.  *  it  was  held  that  a  usage  of  London  bond 
dealers  wliich  empowered  them,  after  an  absolute  sale  of 
securities,  to  control  litigation  which  might  alTect  their  va- 
lidity,   and    charg(i   the   costs  thereof  to  their  customei-s, 

'  Commonwealth    v.s.    Cooper,     1        '  23   How.    (U.   S.)    19;   boo  also 
Maas.  L.  R.  (May  1,  1881)  No.  21;    Curtis  v.s.  Gibney,  .W  Md    15'). 
B.  c.  15  Am.  Law  Uev.  3G0  (.May,        >  81)  I-YhI.  (j.J.    See  Kent  vs.  Wood- 
1881).  liull,  55  N.  V.  Super  ("t.  Ml. 

•89  l"ed.  Kep.  251. 

80 


466  Stock-brokers  and  Stock  Exchanges. 

would,  without  the  consent  of  the  customers,  be  unreason- 
able. 

Evidence  of  a  custom  of  St.  Louis  Bankers  and  Brokers 
that  a  sale  of  bonds  with  "  past  due"  interest  included  in- 
terest accruing  and  not  yet  due,  to  date  of  sale,  is  inad- 
missible, unless  the  principal,  living  in  Kansas  city,  know 
of  it,  and  contracted  in  St.  Louis  in  reference  to  it.^ 

A  custom  of  mining  Stock-brokers  to  charge  an  arbitrary 
sum  for  telegrams  has  been  held  to  be  unreasonable.^ 

(b.)  In  England. 

Although  formerly  the  courts  in  England  were  more  lib- 
eral in  sustaining  the  usages  of  Stock-brokers,  the  tendency 
for  the  past  nearly  quarter  of  a  century  has  been  the  other 
way,  and  the  number  of  such  usages  rejected  by  the  Eng- 
lish courts  nearly  double  those  which  have  not  been  sus- 
tained by  the  American  decisions. 

Stock  transferred  to  secure  advances,  and  which  stock 
was,  by  the  pledgee,  transferred  to  third  persons  by  way  of 
loan,  was  in  In  re  Dennison  ^  held  a  sale  as  of  the  date  of 
the  latter  transfer,  so  as  to  charge  the  pledgee  with  the 
then  price,  although  the  contention  of  the  pledgee  was  that 
such  loans  of  stock  were  never  consitlered  sales. 

In  the  case  of  Pearson  vs.  Scott  ^  the  plaintiffs,  as  exec- 
utors, instructed  S.,  a  solicitor,  to  have  some  stock  and 
shares  sold,  and  authorized  him  to  receive  the  proceeds  of 
such  sale.  S.  employed  in  the  business  the  defendant,  a  Stock- 
broker, with  whom  he  had  at  the  time  a  current  account 

'  Coquard   vs.    Bank    of    Kansas  '  3    Ves.    552.     See    Andre    vs. 

City,  12  Mo.  App.  2G1.  Crawford,  1  Br.  P.  C.  366. 

»  Mar>-e  vs.  Strouse,  5  Fed.  Rep.  *  38  L.  T.  (n.  s.)  747. 
483. 


Cases  in  >Yhieli  Usages  have  been  Rejected.     467 

for  differences,  iij)on  private  speculative  transactions  on  the 
Stock  Exchange.  The  defendant,  having  sold  the  prop- 
erty, paid  a  portion  of  the  proceeds  to  S.,  and  by  his  di- 
rections placed  the  balance  to  the  credit  of  S.  in  the  current 
account.  S.  never  paid  the  balance  to  the  plaintiffs,  but 
subsequently  absconded,  and  was  declared  a  bankrupt.  The 
court  found  that  the  defendant  had  notice  of  tho.  agency  of 
S.  in  the  business,  audit  was  held  that  the  defendant  was 
liable  for  the  balance ;  and  that  a  usage  of  the  London 
Stock  Exchange  to  the  contrary  would  be  unreasonable,  and 
could  not  be  upiield  in  the  absence  of  knowledge  of  it  on: 
the  part  of  the  principal.' 

In  the  case  of  Duncan  vs.  Hill  ^  the  plaintiffs.  Brokers  on 
the  London  Stock  Exchange,  bought  for  the  defendant  (who 
was  not  a  member  of  the  Stock  Exchange)  certain  shares  for 
the  account  of  the  15th  of  July,  ls7o,  and  on  that  day,  by  his 
instruction,  carried  them  over  to  the  account  of  the  29th  of 
July,  and  paid  differences  amounting  to  ,£'16SS.  The  defend- 
ant, and  various  others,  principals  of  the  plaintiff,  not  having 
paid  the  amount  due  from  them  in  res[)ect  of  contracts  for 
the  15th  of  July,  th(^  pjaiiililfs  became  defaulters ;  and  on 
the  18th,  in  conformity  with  the  rules  of  the  Stock  Ex- 
change, they  were  so  declared,  and  their  transactions  were 
closed,  and  accounts  were  made  up  at  the  prit-es  curient  on 
that  day.  On  the  closing  of  the  accounts,  a  further  sum  i)e- 
came  (lu<-  from  tht-m  in  I'l-sprct  of  (lilTereiices  ujxrn  tlie  eon- 
tracts  carried  over  by  them  for  the  defendant.  In  an  action 
to  recover  this  sum  and  the  £'ltISS,  held  (i-cversiiig  the  de- 
cision of  the  court  ix-lowj  that  the;  defendant  was  not  liable 

'  To  Hiimc  effect  ure  tlie  Aiiu-riran        '  L.  II.  8  Ex.  212.     Sco  ElIU  va. 
piuwMof  rWier  vm.  Unnvn,  Kll  .\Iils.s.    Pond,  (1898)  1  Q.  li.  D.  426. 
2'/>;  Kvunu  vh.  Wulii,  71  I'a  Si    lO'J. 


468  Stock-brokers  and  Stock  Exchanges. 

for  anything  beyond  the  £1688,  there  being  no  implied  prom- 
ise bv  a  principal  lo  his  agent  lo  ind(!ninify  him  for  loss 
caused,  not  by  reason  of  his  liaving  entered  into  the  contracts, 
which  he  was  authorized  to  enter  into  b}'^  tlie  principal,  but 
by  reason  of  his  own  insolvency;  although  the  transaction 
had  been  carried  out  in  accordance  with  the  customs  and 
rules  of  the  Stock  Exchange,  wliicli,  however,  were  not 
proven  to  have  been  known  to  the  defendant.  The  court, 
through  Mr.  Justice  Blackburn,  upon  the  subject  of  usage, 
said  :  "  It  must  be  admitted  that  for  any  loss  incurred  by 
the  agent  by  reason  of  his  having  entered  into  such  contracts, 
according  to  such  rules,  unless  they  be  wholly  unreasonable, 
and  where  the  default  is  without  any  personal  fault  of  his 
own,  he  is  entitled  to  be  indemnified  by  his  principal  upon 
an  implied  contract  to  that  effect.  But  it  is  argued  that 
where  the  agent,  as  in  this  case,  is  subjected  to  loss,  not  by 
reason  of  his  having  entered  into  the  contracts  into  which  he 
was  authorized  to  enter  by  his  principal,  but  by  reason  of  a 
default  of  his  own^that  is  to  say,  as  in  this  case,  by  reason 
of  his  insolvency,  brought  on  by  want  of  means  to  meet  his 
other  primary  oI)ligati<)ns — it  cannot  be  said  that  he  has 
suffered  loss  by  reason  of  his  having  entered  into  the  con- 
tracts made  by  him  on  behalf  of  his  principal,  and  conse- 
quently there  is  no  promise  which  can  be  implied  on  the  part 
of  his  principal  to  indemnify  him,  and  in  the  present  case 
there  certainly  was  no  express  promise  to  this  efifect.  .  .  . 
The  plaintiffs'  insolvency  was,  so  far  as  regards  the  de- 
fendant, entirely  the  result  of  their  own  default."' 

'  But  if  the  client  chooses  to  ac-  found  bj'  the  assignee  to  be  against 

cept   the   assignee's    closing,  he  is  the    Broker   (Hartas   vs.    Ribbons, 

bound  to  indemnify  the  defaulting  58  L.  J.  Q.  B.   187,  distinguishing 

Broker  in  respect  of  the  difference  Duncan  vs.  Hill,  supra),  and  if  there 


Cases  iu  which  Usages  have  been  Rejected.     409 

lu  Tonipkius  vs.  Satfery  '  it  appeared  that  C.  was  a  mem- 
ber of  the  Stock  Exchange ;  he  notified  the  secretary  that 
he  was  unable  to  meet  his  engagements  on  the  Exchange. 
In  such  a  case  the  rules  of  the  Exchange  [)rescribe  the  course 
to  be  followed  :  the  defaulter  ceases  to  be  a  member  of  the 
body  ;  two  members  of  the  Exchange  act  as  official  assignees 
of  the  defaulter  ;  a  meeting  of  the  creditors  is  called  ;  the 
defaulter  (as  he  is  required  to  do)  makes  his  statement ;  and, 
the  assembled  creditors  having  decided  what  is  to  be  done, 
the  official  assignees  carry  the  decision  into  execution.  C. 
made  his  statement  that  he  had  no  debts  outside  of  the 
Exchange.  The  creditors  of  C,  members  of  the  Stock  Ex- 
change, then  consented  to  accept  a  composition  ;  and,  to 
provide  for  a  part  of  it,  he,  at  the  demand  of  the  official 
assignees,  gave  them  a  check  for  £5000,  then  standing  to 

was  privity  of  contract  between  the  with   tlie  jobber  at  the   "luunmer 

chent  and  a  jobber  from  whom  the  price,  "  but  in   Levitt  vs.  llaniblet, 

Broker  bought  or  sold,  the  jobber  5  Com.  Cas.  326;  6  ib.  79,   it  was 

miffht  sue  the  client  for  completion,  held  that  no  such  option  existed, 

or  vice  versa.     Beckhusen  vs.  Ham-  '  L.  R.  3  App.  Cas.  213.     Tomp>- 

blet,  69  L.  J.  Q.  B   431;  70  L.  J.  K.  kins  vs.  Saffery  was  considered  in 

B.    600,    in    which    case    a    jobber  Richardson  vs.  Storment,  Todd  & 

failed  to  recover  by  reason  of  the  Co.,  G9  L.  J.  Q.  B.  369,  in  which  it 

want  of  privity  ijetween  him  and  wa.s  held  that  the  "assets"  (Stock 

the  client  occa.sioned  by  the  Broker  Exchan<io  Rule  176)  to  be  collected 

lumping  several  onlers  besides  his  by  the  oflicial   assignee   meant  the 

client's  in  the  one  contract,  and  a  defaulter's   cMitire    iL>wets,    and    not 

usa^e  of  the  Stock  E\chani;e  to  the  merely  the  Stock  Exchan-^e  !is.set.s, 

contrary,  was  held  not  proved,  but  and    that    the    traM.><fer   of   a    part 

in  Scott  V8.  Gfidfrey,  70  L.  J.  K.  B.  thereof,  with  the  intention  to  trans- 

954,  such  a  u.sage  was  held  estab-  for  all,  wius  a  cpssio  boiioruin  em- 

lished  and  it  wa«  also  held  that  it  pf)worin!r   the   a.s.sit;npe   to   sue   for 

was  reasonable.     See  aW)  May  vs.  recoverv  of  the  entire.  witho\it  set- 

.•ViiKcli,    13   Times    L.    R.    .WS.    re-  ting  off  a  debt  of  tin-  di>faiilt«'r  to 

ver»c<l  on  other  trrounds,  14  T   I-.  H.  defonrlants,  who    h.-id    been    Stock- 

5.51.     In    .\ndnrHon    vs     Beard,   69  brokers  .nul   were  well  acquainted 

L.  J    Q,  B.  610.  it  wiis  held  that  the  with  the  rulou. 
customer   hiul   an   option   to   cIoim! 


470  Stock-brokers  and  Stock  Exchanges. 

his  credit  in  the  Bank  of  Enghind.  It  afterwards  appeared 
that  C.  owed  debts  to  a  number  of  outside  creditors  and  was 
declared  a  bankrupt.  The  trustee  iu  bankruptcy,  on  behalf 
of  these  creditors,  claimed  this  sura  from  the  official  assignee 
of  the  Stock  Exchange,  and  the  court  decided  that  the 
trustee  was  entitled  to  claim  it,  for  the  action  of  C.  in  paying 
it  to  the  official  assignees  amounted  to  a  cessio  ho7iorum,  and 
constituted  an  act  of  bankruptcy  ;  and  that  the  rules  of  the 
Stock  Exchange  as  to  defaulting  members  of  the  body,  are 
the  rules  of  a  domestic  forum,  which  have  no  inlluence  on 
the  rights  of  those  who  are  not  amenable  to  the  jurisdiction 
of  that  body.  They  cannot,  therefore,  govern  the  rights  of 
the  general  creditors  of  a  defaulting  member.^ 

'  See  also  Ex  parte  Neilson,  3  De  that  that  would  destroy  the  debt." 

G.  M.  &  W.  560,  note,  where  Skir-  Cotton,  L.  J.,  said  the  rule  was  ap- 

row,  Com.,  said:  "The  rules  of  the  plicable,  but  no  question  arose,  as 

Stock    Exchanfz;e    are    inoperative  the  assent  had  been  obtained.     The 

that  interfere  with  the  law  of  the  que.stion  was  not  raised  in  the  second 

land."     It  has  been  also  held  that  case  just  cited. 

the  rules  of  the  Stock  Exchange  as  In  Levitt  vs.  Hamblet,  6  Com. 
to  defaulting  members,  do  not  pre-  Cas.  79;  5  ib.  326,  it  was  held  that 
vent  a  creditor,  a  member  of  the  Rules  .53,  .54  and  177  of  the  London 
Exchange,  who  has  received  a  divi-  Stock  Exchange,  although  binding 
dend  from  the  official  assignee,  from  upon  its  members,  did  not  bind  out- 
suing  for  the  balance  of  his  debt  siders.  Rule  53  provided  that  the 
(Ex  parte  Ward,  51  L.  J.  Ch.  7.52;  Exchange  in  its  dealings  would  only 
Ratcliffe  vs.  Mendelsohn,  71  L.  J.  recognize  members.  Rule  54  con- 
K.  B.9,S4),  or  from  instituting  bank-  tained  certain  inhibitions  as  to  en- 
ruptcy  proceedings.  In  re  Mendel-  forcing  claims,  and  Rule  177  had 
sohn,  (1903)  1  K  B.  216.  In  Ex  reference  to  a  defaulting  member, 
parte  Ward,  just  cited,  also  it  ap-  A  usage  amongst  Brokers  to  settle 
peared  that  there  was  a  rule  (54)  in  account  was  held  not  to  bind 
which  prevented  a  Stock  Exchange  outsiders.  Anderson  vs.  Suther- 
creditor  from  suing  at  law  without  land,  13  Times  L  Rep.  163.  See 
the  consent  of  the  other  Stock  Ex-  also  Crossley  vs.  Magniac,  (1903)  I 
chancre  creditors,  which  consent  had  Ch.  .594  (supra,  p.  4.59)  in  which  the 
been  obtained.  Jessel,  M.  R.  said:  court  said  that  a  custom  of  London 
"If  they  (the  creditors)  had  not  as-  Stock  Exohanire  Brokers  to  debit 
sented,  it  does  not  appear  to  me  country  Broker's  accounts  with  the 


Cases  in  which  Usages  have  been  Uejected.     471 

But  the  case  in  which  the  extent  of  usages  in  controllinsr 
contracts  was  most  thoroughly  considered  was  that  of 
Eobinsou  vs.  MoUett,'  which  we  have  before  referred  to. 
There  R.,  a  merchant  of  Liverpool,  gave  orders  to  a  tallow- 
broker  in  London  to  buy  certain  quantities  of  tallow  for 
him.  The  Broker  did  not  buy  the  specified  quantity  from 
any  person,  though  he  sent  bought  notes  in  the  usual  form 
— "  Bought  of  A.  on  your  account ;  "  but  both  before  and 
after  the  order  he  bought  from  various  persons,  in  his  own 
name,  large  quantities  of  tallow,  proposing  to  allot  to  11. 
the  quantities  R.  had  desired  to  be  bought.  On  Il.'s  refusal 
to  accept,  the  Broker  sold  the  tallow,  and  brought  an  action 
for  the  diflFerences.  Held,  that  though  the  evidence  showed 
such  a  mode  of  dealing  to  be  the  usage  in  the  London  tallow 
market,  the  action  was  not  maintainable  against  a  principal 
who  did  not  appear  to  have  had  knowledge  of  its  existence. 
A  custom  in  a  particular  market,  that  a  Broker  who  has 
purchased  and  is  purchasing  goods  of  a  particular  kind,  in 
his  own  name,  may  take  portions  of  those  goods  and  supply 

proceeds  of  stock  of  the  latter's  change  to  treat  share  certificates, 
clients  was  not  proved,  and,  even  with  transfer  executed  in  blank,  as 
if  proved,  w:ia  unreasonable,  in  so  ne^jotiable  in.strunients,  wa.s  held 
far  as  it  would  relieve  an  a^ent  from  not  bindin;;,  its  they  were  intended 
his  obligation  to  his  principal,  who,  to  pass  by  transfer  only.  London 
in  this  case,  had  given  a  power  of  and  County  liank  vs.  London  and 
attorney  to  the  London  Brokers.  River  Plate  Hank,  L.  R.  20  Q.  B.  D. 
The  latter  might  be  ju.stified  in  pay-  232;  21  ib.  535.  See  Bank  vs.  Hop- 
ing the  country  Broker,  if  he  were  so  worth,  30  Ch.  D.  30;  Franco  vs. 
authorized  by  the  client,  in  cjush  or  Clark,  20  Ch.  Div.  257;  Williams  vs. 
by  check,  but  not  in  debiting  his  Colonial  Bank,  38  Ch.  Div.  '.{HH; 
account  in  rurniing  account,  and  aff'd  15  .^pp.  Cas.  2()7;  l.imllcy  <>n 
mi.xing  it  up  with  other  transac-  Companies,  (ith  (hI.  050,  et  8«'<i. 
tions.  In  lilackburn  vs.  .Mason,  08  '  L.  R  7  H.  L.  Kng.  &  1.  App. 
Law  T.  510,  such  a  custom  was  also  Cas.  K02.  See  also  Johnston  vs. 
held  unreasonable.  Usbomo  11  A.  «&  E.  &10. 
A  usage  of  the  London  Stock  Ex- 


472  Stock-brokers  ami  Stock  Excliaiii^es. 

them  to  principals  who  have  enn^loycd  him  in  his  character 
of  Broker  to  buy  such  goods  for  them,  is  one  of  a  peculiar 
nature,  and  cannot  be  supported  as  against  a  principal  not 
proved  to  have  been  acquainted  with  it  when  he  gave  the 
order.' 

The  principle  of  the  decision  in  Robinson  vs.  Mollet  was 
followed  in  Hamilton  vs.  Young,^  in  which  case  a  usage 
of  the  Dublin  Stock  Exchange  by  which  a  Stock-broker,  en- 
titled to  dispose  of  stock  or  shares  of  a  customer  for  non- 
payment of  money  due  to  him  by  the  customer,  might,  in- 
stead of  selling  the  stock  or  shares,  take  over  to  himself,  at 
the  market  price  of  the  day,  such  portion  of  the  stock,  as 
would  be  necessary  to  meet  the  demand,  or  a  forced  sale 
whereof  would  prejudice  the  price  to  the  disadvantage  of 
the  customer,  was  held  to  be  more  unreasonable  even  than 
the  usage  in  Mollet  vs.  Robinson.  Although  no  improper  or 
unfair  dealing  was  imputed  to  defendant  Broker,  the  court 
said  :  "  The  case  requires  to  be  disposed  of  on  higher  and 
more  general  grounds  than  either  actual  fraud  committed 
or  unfair  profit  made,  and  on  those  rules  of  equit}',  which 
it  would  be  dangerous  to  disturb  or  infringe." 

In  the  case  of  Neilson  vs.  James  ^  a  Stock-broker  was  em- 
ploved  by  the  registered  owner  of  certain  shares  to  sell  them, 
which  he  subsequently  did  to  a  jobber,  but  the  bought  and 
sold  notes  did  not,  in  accordance  with  a  custom  of  the 
Bristol  Stock  Exchange,  give  the  name  of  the  registered 
owner  as  required  by  statute,  thus  rendering  the  contract  of 
sale  void.  The  bank  stopped  before  name  day,  and  the 
purchaser,  named  by  the  jobber,  repudiated  the  purchase. 
The  court  held  that  the  custom  was  both  unreasonable  and 

*  See  also  Langton  vs.  Waite,  L.        '  L.  R.  7  Ir.  269. 
R.  6  Eq.  165.  ^  9  Q.  B.  Div.  546. 


Gases  in  which  Usages  have  been  Rejected.     473 

iUegal,  and  for  the  breach  of  duty  C(nuinitted  by  the  bro- 
ker, awarded  the  owner,  as  damages,  the  price  for  which  the 
shares  were  sold.  It  did  not  appear  in  that  case  that  the 
phiiiitifif  knew  of  the  custom,  and  the  judgment  of  the  court 
is  on  the  assumption  that  he  was  ignorant  of  it,  for  Brett, 
L.  J.,  says,  "  the  phiintiff  is  only  bound  by  such  a  custom  as 
is  both  reasonable  and  legal,  for  to  that  extent  only  can  a 
person  who  is  ignorant  of  a  custom  be  assumed  to  acquiesce 
in,  and  be  bound  by,  it.''  This  decision  was  followed  in 
Perry  vs.  Barnett,^  in  which  case  in  was  shown  that  the 
Client  was  ignorant  of  the  custom,  but  in  a  similar  state 
of  facts  it  was  held  in  Seymour  vs.  Bridge,'-  that,  as  the 
Client  had  many  prior  transactions  on  the  Stock  Exchange, 
and  was  acquainted  with  the  custom,  he  was  bound  by  it. 
In  Coates  vs.  Pacey  ^  the  contract  note  did  not  give  the  num- 
ber of  the  shares  as  required  by  statute,  and  there  was  a 
verdict  for  the  defendant  Client,  but  in  that  case  no  evidence 
of  the  custom  was  given.  The  Court  of  Appeals  affirmed 
the  decision  ^  on  the  ground  that  the  Brokers  had  not  acted 
in  accordance  with  the  authority  given  to  them,  which  was 
to  make  a  valid  contract. 

In  conclusion  we  think  that  an  examination  of  the  Ameri- 
can cases  will  show  that  the  effect  of  the  usages  of  Stock- 
brokei*s  upon  contracts  nuide  upon  the  Exchange  iiave  not 
been  sufficiently  considered  or  applied. 

The  system  of  busin«'ss  transactetl  between  Stock- brokers 
and  their  Clients  is  so  novel  when  ctmtrasted  with  the 
ordinary  relation  of  ])rincipal  atid  aL'iMit,  the  business  is 
generally  despatched  with  sneli  iMarvriloiis  proniplness, and 

'  It  Q.  li.  \)\v.  107;  1.0  Q.  li.  Div.        '  s  T.  I..  \l.  :\rA. 
388.  *.ST.  I.,  i:.   171. 

'  11  H   n.  Div.  100. 


474  Stock-brokers  uihI  Stock  Exchanges. 

its  results  very  often  involve  snnis  of  such  great  magnitude, 
that,  in  a  contest  where  either  the  Broker  or  the  Client 
seeks  to  be  relieved  from  the  responsibilities  of  his  posi- 
tion, the  usages  of  the  Exchange,  when  fully  proved, 
should  play  an  important  part,  especially  in  the  absence  of 
an  express  agreement ;  and  even  if  these  usages  seem  at 
times  to  intrench  upon  abstract  principles  of  law,  it  should 
be  remembered  that  the  business  of  dealing  in  shares  upon 
speculation  is  a  comparatively  new  one,  full  of  legal  anom- 
alies, and  that  it  should  not  be  too  strongly  governed  by 
rules  that  were  made  for  a  different  and  simpler  condition 
of  business  in  times  long  since  passed. 


Dealiugs  in  Stocks  at  Conimou-law.  475 


CHAPTER  Y. 

STOCK-JOBBING. 

I.  Dealings  in  Stocks  at  Common-law. 
II.  Stock-} ohbing  Acts, 
(a.)  In  England. 
(J).)   In  the  United  States. 
III.  Wagers. 

(a.)  At  Common-law. 

{b.)    Under  Existing  Laws. 

(c.)    Wagers  between  Principals. 

(d.)  Actions  by  Brokers  for  Money  Laid  Out,  etc.,  and 

Commissions  in  Stock  Transactions. 
(e.)   Options,  ''Puts,"  "  Calls,"  ''Straddles." 
(/.)  Conspiracy     to     Affect     Stocks,     etc. — "  Corners," 

"Rigging  the  Market,"  "Pools." 
(y.)    General  Principles  Deducihle  from  the  Cases. 

I.  DealiiigH  in  Stocks  at  Coiuiiioii-law. 

At  common-law  there  is  nothing  illegal  in  the  sale  of  the 
shares  or  scrip  of  a  corporation.'     They  are  treated  the 

'  Barklay's   Case,   26   Beav.    177;  &  8  Vict.  c.  110,  the  sale  of  shurc«  of 

.baton's  Case,  4  De  G.  it  J.  320;  Har-  certain  named  companies  \va.s  pro- 

liHoti  VH.  Ileathoni,  0  .Man.  «t  G.  81;  liiljited  until  the  company  luuJ  ob- 

TempcHt  VH.  Kilner,  2C.  li.  300,  308;  taintMi    a    ccrtilicate    of    compicto 

Bafaje's  Case,  13  Beav.  102;  Noye«  reni-stration.     Kven  tlicn  salcH  matle 

V8.  Spaulding,  27  Vt.  420;  Chitty  on  by  any  Hubscriber  n<jt  roi:iHtere<l  iw  a 

Cont.   aith  ed.)   1011,   1012,   note  shareholder  were  made  illeRal,  5  20; 

(d).     But  in  Enj;land,  by  Htatute  7  see  aJHo  Kx  parte  .NcilHon,  3  De  G. 


476            Stock-brokers  and  Stock  Exchanges. 

same  as  any  other  kind  of  properly,  and  are  subject  to  nu 
restrictions  or  limitations  except  such  as  are  imposed  from 
time  to  time  by  acts  of  the  le<^ishiture,  as  will  be  hereafter 
noticed. 

11.  Stock-jobbing  Acts. 

Early  in  the  reign  of  George  the  Second  the  specuhition 

in  public  stocks  or  securities  became  so  prevalent,  and  as- 

M.  &  G.  556;  Morris  vs.  Cannan,  4  is  itself  illegal,  the  sale  of  its  shares 

De  G.  F.  &  J.  582.     This  statute  or  scrip  is  also   illej^al    (Joseph  is. 

was  repealed,  and  the  prohibitions  Pebrer,   3   B.   it  C.   639;   Buck   vs. 

never  extended   to  companies  the  Buck,  1  Campb.  547).     When  the 

formation  of  which  was  commenced  business  of  a  company  is  carried  on 

before  the  1st  of  November,  1S44  (in  in  the  colonies,  the  fact  that  it  Ls 

reference  to  which  see   Baker  vs.  registered     in    England    does    not 

Plaskitt,  5  C.  B.  262;  Aston 's  Case,  make  it  illegal.     Hunt  vs.  Cham- 

27  Beav.  474),   nor  to  railway  or  berlain   (1896),    12  L.    T.    R.   186. 

other  companies  requiring  the  au-  But  there  is  nothing  illegal  in  the 

thority  of  Parliament   (Young  vs.  sale  of  shares  in  companies  which 

Smith,  15  M.  &.  W.  121;  Bousfield  are  being  wound   up.     Rudge   vs. 

vs.  Wilson,  16  id.  185;  Lawton  vs.  Bowman,  L.  R.  3  Q.  B.  689.     See 

Hickman,  9  Q.  B.  563).    Companies  Emmerson's  Case,  1  Ch.  433  (as  to 

formed  since  1862  arc  now  regulated  enforcing  a  contract  for  the  sale  of 

by  the  Companies  Acts  of  1862  and  shares  in  a  company  in  liquidation). 

1867,  and  their  amending  acts.  By  the  statute  of   14  Geo.  HI. 

Some  of  the  American  decisions  c.  48,  no  insurance  shall  be  made  on 

holding  that  shares  of  stock  are  alien-  the  life  of  any  person,   or  on  any 

able  at  common  law,  are  Sergeant  other  event  wherein  the  person  for 

vs.  Franklin  Insurance  Co.,  25  Mass.  whose  use  or  benefit,  or  on  whose 

90;   Heart  vs.  State  Bank,  2  Dev.  account,  such  policy  shall  be  made 

Eq.  (S.  C.)  Ill;  Brightwell  vs.  Mai-  .shall  have   an    interest    by  way  of 

lory,  10  Yerg.  (Tenn.)  196;    .\llen  gaming   or   wagering.     Under  this 

vs.  Montgomery'  R.  R.,  11  Ala.  437,  enactment  it  was  decided,  in  Pater- 

451;  Choteau  Spring  Co.  vs.  Harris,  son  vs.  Powell  (2  Moo.  &  S.  399;  9 

20    Mo.    382;    Cole  vs.  Ryan,    52  Bing.  320),  that  an  engagement,  in 

Barb  168;  Mobile  Mutual  Insurance  consideration  of  forty   guineas,  to 

Co.  vs.  Cullom,  40  Ala.  558;  Boston  pay   one  hundred   pounds   in   case 

Music   Hall   Association   vs.   Corj-,  Brazilian   should    be   at   a   certain 

129  Mass.  435.  price  on  a  certain  day,  subscribed 

It  has  also  been  held  that  if  a  by  several  persons  each  for  himself, 

company,  or  a  prospected  company,  is  a  void  wagering  policy. 


Stock-jobbiiii?  Acts.  477 

sumed  so  many  different  forms  of  gambling,  that  the  whole 
business  community  became  infected  and  demoralized  by  it. 
Accordingly,  in  1734,  a  statute  was  enacted,'  which  by  a 
subsequent  statute  in  1737^  was  made  perpetual,  entitled 
"  An  Act  to  Prevent  the  Infamous  Practice  of  Stock-job- 
bing." This  statute  will  hereafter  be  stated  in  full.  It  was 
enacted  for  the  purpose  of  preventing  gambling  in  the 
funds,  b}'  parties  Avho  never  intended  to  buy  or  sell,  but 
merely  to  speculate  upon  the  future  price  of  stock,  by  mak- 
ing what  are  called  "  time  bargains,"  and  comiX)unding  for 
differences.  It  was  never  intended  to  affect  the  lona  fide 
sale  of  stock,  where  the  stock  was  actually  transferred,  al- 
though the  seller  was  not  possessed  of  it  at  the  time  of  mak- 
ing the  contract.^ 

This  act  was  called  "  Sir  John  Barnard's  Act,"  after  the 
name  of  the  individual  who  was  instrumental  in  procuring 
its  passage.  The  preamble,  which  briefly  summarizes  the 
effects  of  stock-jobbing,  was  as  follows :  "  "Whereas,  great 
inconveniences  have  arisen,  and  do  daily  arise,  by  the 
wicked,  pernicious,  and  destructive  practice  of  stock-job- 
bing, whereby  many  of  his  Majesty's  good  subjects  have 

'  7  Geo.  II.  c.  8.  ha.s  ri.sen,  the  seller  pays  tiie  buyer 
'  10  Geo.  II.  0.  8.  in  a  similar  way.  The  sums  so  paid 
•  .\ddi.son  on  Cont.  (2d  Am.  ed.)  are  oallefl  dilTerences.  In  fact,  a 
*122.  In  Chitty  on  Bills  ( 11th  Am.  time  hariiain  is  a  mere  wa^;er,  the 
ed.),  *92,  ncite  (*•),  a  stock-jobbing  seller  bettiiii;  that  the  .stork  will 
traasaetion  is  defined  a.s  follows:  fall,  the  buyer  that  it  will  rise."  See 
"Neither  buyer  not  seller  have  any  Rawlinns  vs.  Hall,  1  C.  &  P.  13,  note 
stork,  but  the  buyer  agrees  nomi-  (a).  Whether  a  lejjal- contract,  ^iv- 
nally  U)  buy  of  the  seller  stock  (say  ing  a  right  of  action,  can  arise  out  of 
£1,(KX))  on  a  certain  day.  When  illegal  transactions,  or  by  payments 
that  day  arrives,  if  the  st<M'k  is  at  a  made  on  account  of  another  in  set- 
lower  price  than  when  the  bargain  tling  dilTorcnccs  \jpon  transactions 
wjm  rna<le,  the  buyer  pays  the  seller  within  the  Stock-jobbing  .\ct, 
a»  much  ]>*T  nut.  on  thr-  £l,(KM)a.s  ({uirrr.  K\  p.irte  iJaniclM,  II  Vcm. 
the  Hto<;k  has  fallen;  but,  if  the  stock  Itil 


478  Stock-brokers  and  Stock   Kxclum^es. 

been  and  are  diverted  from  pursuing  and  exercising  their 
lawful  trades  and  vocations,  to  the  utter  ruin  of  themselves 
and  families,  to  the  great  discouragement  of  industry,  and 
to  the  manifest  detriment  of  trade  and  commerce."  The 
statute  then  enacts  that  all  contracts  and  agreements  upon 
which  any  premium  shall  be  given  or  paid  for  liberty  to  put 
upon,  or  delivei",  receive,  accept  or  refuse  any  public  or 
joint-stock  or  other  public  securities  whatsoever,  or  any 
part,  share,  or  interest  therein,  and  also  all  wagers  and  con- 
tracts in  the  nature  of  wagers,  and  all  contracts  in  the  na- 
ture of  puts  and  refusals,  relating  to  the  then  present  or 
future  price  or  value  of  any  such  stocks  or  securities  as 
aforesaid,  shall  be  void  ;  and  all  premiums  or  sums  of  money 
given,  received,  paid,  or  delivered  upon  an}^  such,  contracts 
or  agreements,  or  upon  an}^  such  wagers,  or  contracts  in  the 
nature  of  wagers,  shall  be  restored  or  repaid  to  the  person 
who  shall  give,  pay,  or  deliver  the  same,  who  shall  be  at 
liberty,  within  six  months  after  the  agreement,  or  laying 
the  wager,  to  sue  for  and  recover  the  same  from  the  person 
receiving  the  same,  etc." ' 

'  The  following  is  an  interesting  purchasing  and  selling  any  Quantity 

historj-  of  "time  bargains,"  from  of  Stock  to  be  delivered  or  adjusted 

Beaves,    Lex.    Mer.    482    (5th    ed.  at  a  future  time.     The  usual  Times 

1792):  for  which  Bargains,  founded  on  real 

"  Time  Bargains.  Property,  and  intended  to  be  settled 

"But  if  the  business  of  Stock-  bona   fide,   were   made,    were   from 

Brokers  was  confined  solely  to  buy-  three  months  to  three  months,  four 

ing  and  selling  the  real  Property  of  times  within  the  year;  viz.  in  Febru- 

their  Employers  in  the  Funds,  there  ary,  May,  August,  and  November; 

woiild  not  be  Half  the  number  that  and  those  Periods  of  settling  the  ac- 

now   follow   this    Profession;    it   is  counts  of  such  Time  Bargains  was 

therefore  necessary  to  take  notice,  called     the     Rescounters,    from    a 

that  the  interest  which  Foreigners  Dutch  mercantile  tenn  for  adjusting 

have  in  our  funds,  particularly  the  Accounts    Current    between     mer- 

Dutch,  gave  rise  to  Time  Bargains  chant  and  merchant.     The  Impos- 

— that  is  to  say,  to  contracts  for  sibility  of  ascertaining  whether  the 


Stoi'k-jobbinii:  Acts. 


4T1> 


There  were  numerous  decisions  under  "Sir  John  Bar- 
nard's Act,"  the  most  important  of  which  have  been  classified 
under  the  following  heads  : 

1.  Nature  of  Stock  emhraced  in  the  Act. — The  act  only 
applied  to  '•  public  stocks,"  and  not  to  railway  and  joint- 
stock  shares.^  It  did  not  apply  to  time  bargains  in  foreign 
funds ;  ^    nor    were    such    agreements   illegal   at  common 


Commissions  from  abroad  given  by 
letters  from  Foreigners,  or  bj-  their 
Correspondence  here,  to  Brokers  to 
buy  and  sell  Stocks  for  Time  were 
founded  upon  real  Property  or  not, 
gave  Birth  to  Stock-Jobbing,  or 
Dealing  in  the  Funds  upon  Specula- 
tion, and  the  Persons  that  play  at 
this  Game,  for  Gaming  it  is  of  the 
first  Magnitude,  whether  Principals 
or  Brokers,  are  called  Stock  Job- 
bers. They  purchase  or  sell  for  a 
given  time,  frequently  without  be- 
ing possessed  of  any  propertj'  in  the 
Funds  they  bargain  for,  merely 
upon  speculation.  For  instance,  A 
imagines  that  a  Peace,  or  some  other 
advantageous  national  Event,  will 
raise  the  Price  of  any  given  Fund 
within  the  space  of  three  months 
considerably  above  the  price  of  the 
Day  on  which  he  makes  his  Time 
Bargain:  On  this  Principle  he  gives 
his  Broker  Orders  to  buy  a  large 
Quantity  to  be  taken  and  paid  for 
three  mcjnth.s  from  that  date;  wlien 
the  time  expires,  if  the  Stock  luus 
risen  according  to  his  expectation, 
instciul  of  taking  it,  for  prolmbly  it 
has  f)een  bought  of  a  person,  wlio 
had  it  not  to  sell  pvpii,  he  receives 
from  the  Broker  the  Difference  in 
money  between  the  price  on  tlie  day 
the    Bargain    was    made,    and    tlie 


price  at  the  expiration  of  the  three 
months,  and  this  is  his  Profit.  If, 
on  the  Contrary,  the  Stock  has 
fallen  below  the  price  of  the  day  on 
which  he  purchased  for  three 
months,  he  must  pay  the  Difference, 
and  this  will  be  a  losing  .\ccount.  It 
is  computed  that  the  Bargains  on 
Stock  Jobbing  Accounts  made  in 
the  course  of  a  year  exceed  liy  many 
millions  the  transfers  made  at  the 
Books  of  real  Property,  and  the 
Conclusion  is  apparent  that  great 
Fortunes  are  made  and  lost  by 
Stock  Jobbing.  It  is  to  be  ob- 
served likewi.se,  that  the  Brokers 
job  for  their  own  acct)init,  wiiich 
occasions  frequently  Failures  at  the 
Stock  Exchange." 

'  'A'illiams  vs.  Tyre,  18  Beav.  3GG; 
Hewitt  vs.  Price,  5  Sco.  X.  R.  220, 
and  4  Man.  &  G.  355;  3  Railw.  Cas. 
175;  Ex  parte  Turner,  3  De  G.  i  J. 
40,  and  cases  citetl;  Thacker  vs. 
Hardy,  L.  K.  4  Q.  B.  Div.  <>,S5,  (VS9; 
Noyes  vs.  Sj)aulding,  27  Vt.  42*.). 

=  EU.swortli  vs  Cole.  2  M.  fc  \V. 
31 ;  2  Gale,  220;  Henderson  vs.  Bi.se. 

3  Stark.  1.58;  Wells  vs.  Porter.  3 
Sco.  141;  B.  c.  2  Bing.  N.  C.  722; 
2  Hodg.  78;  Oakley  vs.  Rigby,  3 
Sco.  194;  8.  c.  2  Bing.  N.  C.  732; 
2  Hodg.  42;  Bobmin  vs.   Fallowes. 

4  Sco.  43;  ».  c.  3  Bing.  N.  C.  392; 


480  Stock-brokers  and  Stock  Exchaiif^es. 

law.'  The  act  was  confined  to  the  stocks  of  England,  and 
not  of  other  countries  ;'^  and  time  bargains  in  India  funds 
were  held  valid  up(jn  appeal  to  the  Privy  Council.^  But 
jobbing  in  oimiiion  was  within  the  statute.* 

2.  Transactions  under  the  Statute. — The  act  did  not  ap- 
ply where  the  seller  was  really  possessed  of  the  stocks  in- 
tended to  be  transferred;^  and  it  was  sufficient  if  at  the 
time  of  the  sale,  through  the  medium  of  a  Broker,  the 
principal  was  possessed  of  the  stock,  although  his  name  was 
not  disclosed  by  the  Broker.*  A  person  who  had  omnium 
was  considered  as  potentially  in  possession  of  stock,  and 
could  legally  contract  to  sell  out  omnium  to  be  replaced  by 
stock.' 

So  where  C,  being  indebted  to  G.  in  £1,000,  agreed  to 
transfer  within  a  given  time  £100  per  annum,  long  annuity, 
at  the  then  price,  and  in  the  meantime  pay  G.  the  divi- 
dends, and  that  the  debt  of  £1,000  should  constitute  part 
of  the  purchase-money,  but  the  stock  was  not  purchased  at 
the  time,  and  there  was  a  rise  in  the  price  of  the  same — 
held,  that  the  agreement  was  not  usurious  or  within  the 
Stock-jobbing  Act,^  and  there  was  nothing  in  the  statute 
to  prevent  a  loan  of  stock — i.  e.,  a  transfer  of  stock  from  A. 
to  B.  on  the  strength  of  an  understanding  by  B.  that  the 

3  Hodg.  41;  Morgan  vs.  Pebrer,  4  *  Brown  vs.  Turner,  7  T.  R.  630; 

Sco.  230;3Bing.  N.C.  •157;3Hodg.  2   Esp.   631;   s.   p.,    Olivierson   vs. 

3;  Paterson  vs.  Powell,  9  Bing.  329;  Coles,  1  Stark.  496. 

2  Moo.  &  S.  399.     See  Bryan  vs.  ^  Saunders  vs.  Kentish,  8  T.  R. 

Lewis,  Ry.  &  M.  386;  Lorymer  vs.  162;  Tate  vs.  Wellings,  3  id.  531. 

Smith,  1  B.  &  Cr.  3.  '  Child  vs.  Morley,  8  id.  610. 

I  Id.  ^  Olivierson   vs.   Coles,    1    Stark. 

J  Id.  496. 

'Ramloll     Thackoorseydass    vs.  'Clark  vs.  Giraud,  1  Madd.  511. 
Soojumnull    Dhondmull,     12    Jur. 
315. 


stock-jobbing  Acts.  481 

same  stock,  or  a  like  amount  of  stock,  should  be  transferred 
to  A.  at  a  future  day.' 

An  executory  contract  to  transfer  stock  of  which  the  party 
was  not  possessed  was,  however,  regarded  as  void  and  ille- 
gal, although  the  transaction  did  not  fall  within  the  mis- 
chief, as  it  ceitainly  did  not  within  the  express  prohibition, 
of  the  act,  inasmuch  as  an  actual  transfer  of  the  stock  was 
intended.^  So  a  contract  to  pay  the  difference  which  may 
become  due  on  the  settling-day  on  the  sale  of  consols  is 
void.'' 

In  respect  to  the  procedure  under  the  act,  the  court  held, 
in  "Windale  vs.  Fall,^  that  the  six  months  in  the  first  section 
meant  lunar  months,  and  no  discovery  lay  where  the  cause 
of  action  arose  prior  to  the  expiration  of  six  lunar  months ; 
and  a  plea  of  the  Stock-jobbing  Act  to  a  bill  for  discov- 
ery of  stock  transactions  was  overruled,  the  second  section 
of  the  act  requiring  parties  to  make  a  discovery  whereon 
to  found  an   action.^ 

The  second  section  of  the  act — which  enacted  as  follows  : 
"  That  for  the  better  discovery  of  the  moneys  or  premiums 
which  shall  be  given,  paid,  or  delivered,  etc.,  every  person 
liable  to  be  sued  shall  be  obliged,  etc.,  to  answer  under 
oath,  etc.,  any  bill  of  discovery  in  equity,"  etc. — only 
applied  to  discoveries  as  to  moneys  recoverable  back,  and 
not  to  the  recovery  of  jn-nalties  under  the  lifth  and  eighth 
sections.' 

In  an  action  to  recover  damages  against  one  who  had  re- 

»  Saunders  vs.   Kentish,  8  T.  K.        « .}  Hro.  C.  C.  11. 
162.  '  IJ:ui(T(ift  VH.  \V(Mit\V(irth,  3  Urn 

'.Mortimer  v«    .M(<'aIIai.,  '»  M    .^  C.  C.  !»,  note, 
W.  630;  6  id.  70;  7  id.  20.  "  Mullock  vh.  RicliiirdHon,  11  Vcm. 

'  Sawyer  vs.  Lan(^ord,  2  C.  &  K.  373. 
697. 

31 


482  Stock-brokers  and  Stock  Exchanges. 

fused  to  accept  and  pay  for  stock  agreed  to  be  sold  to  him,  it 
was  necessary  to  prove  an  actual  transfer  of  the  stock  to  some 
other  person  before  the  action  brought ;  and  tlie  proof  alone 
of  a  contract  to  sell  to  such  other  person  before  the  action 
brought,  thougli  folloAved  up  by  an  actual  transfer  afterwards, 
was  not  sufficient  to  sustain  the  action.'  But  it  seemed  not 
to  have  been  necessary  for  the  plaintiff  to  show  that  he  made 
such  transfer  on  the  next  possible  day  after  default  made  by 
the  original  contractor,  though  delay  affected  the  damages.' 
The  act  did  not  compel  a  party  in  a  court  of  law  to  give  evi- 
dence criminating  himself ;  and  therefore,  in  an  action  on 
a  bill  at  the  suit  of  an  endorser  against  the  acceptor,  it  was 
held  that  the  drawer,  a  Stock-broker,  might  refuse  to  give 
evidence  that  the  consideration  for  it  was  Stock-jobbing 
differences,  though  such  Broker  was  bound  to  produce  his 
books.^  A  Stock-broker  was  held  bound,  however,  to  dis- 
cover the  names  of  the  persons  for  whom  he  had  purchased 
shares  in  a  company  which  had  not  been  incorporated, 
chartered,  or  registered.^  Nor  could  such  a  Broker  resist  a 
discovery  under  7  Geo.  II.  c.  8,  by  alleging  the  illegality 
of  the  transaction,  no  penalty  being  imposed  by  the 
act.^ 

But  in  Pritchett  vs.  Smart®  the  court  refused  to  enter- 
tain an  application  by  a  defendant,  in  an  action  on  a  bill  of 
exchange,  to  compel  tlie  plaintiff,  as  Stock-broker,  to  pro- 

'  Heckscher  vs.  Grejjory,  4  East,  ute  7  Geo.  II.  c.  8,  see  Billings  vs. 

607.     A  different  rule  was,  however,  Flight,  2  Marsh.  124;  6  Taunt.  419; 

laid  down  in  Xew  York  in  the  case  Billings  vs.  PoUey,  2  id.   125  n.;  6 

of  Vaupell  vs.  Woodward,  2  Sandf.  Tuant.  422. 

Ch.  14.5,  146.  3  Rawling  vs.  Hall,  1  C.  &  P.  11; 

'  Bordenave  vs.  Gregory,  5  East,  Thomas  vs.  Ne^^ton,  2  id.  606. 

105;    Dorriens   vs.    Hutchinson,    1  *  Aslon's  Ca-^e,  27  Beav.  474. 

Smith,  420.     Whether  an  action  of  ^  Williams  vs.  Trye,  18  Beav.  366. 

assumpsit  can  be  supported  on  stat-  '  7  C.  B.  625. 


Stoek-jobbiug  Acts.  483 

duce  his  books  kept  pursuant  to  this  section/  in  oi'der  to 
enable  the  defendant  to  plead  the  statute. 

3.  Actions  for  Money  Uscd^  etc.,  and  Coynmissions  in 
Stochjohhing  Transactions. — AVhere,  to  an  action  of  debt 
upon  a  bond,  the  defendant  pleaded  the  act  of  7  Geo.  II. 
c.  8,  that  the  jjlaintiff  and  one  Tl.  were  jointly  concerned  in 
certain  contracts  contrary  to  that  statute ;  that  the  plaintiff 
voluntarily  paid  the  differences  ;  and  that  the  bond  was 
given  by  the  defendants  for  securing  to  the  plaintiff  H.'s  pro- 
portion of  that  loss — on  demurrer,  the  court  was  clearly  of 
opinion  that  the  plaintiff  was  entitled  to  recover  the  amount 
which  he  had  paid  under  the  special  authority  of  R.,  though 
for  an  illegal  purpose.^ 

Upon  the  authority  of  the  last-named  case,  the  court,  in 
Petrie  vs.  Hanney,^  held,  against  the  opinion  of  Lord  Ken- 
yon,  that  where  two  persons  engaged  jointly  in  an  illegal 
stock-jobbing  transaction,  and  incurred  losses,  and  employed 
a  Broker  to  })ay  the  ditferences,  and  one  of  them,  Avith  the 
privity  and  consent  of  the  other,  repaid  the  whole  sum  to 
the  Broker,  he  might  recover  a  moiety  from  the  other  as 
money  paid  to  his  use,  notwithstanding  the  statute  7  Geo. 
II.  c.  8,  on  the  ground  that  the  defendant  had  exjiressly 
authorized  the  plaintiff  to  make  the  payment  for  him. 

But  these  cases  were  afterwards  departed  from,  and  are 
no  longer  regarded  as  authority  in  England.^ 

'  §  9  of  act.  .\rm.stronK  vs.  Tolor.  1 1  Whont.  2,'iS; 

*  Faikney   vs.   Reynous,    1    liurr.  ul.so  Kx  piirto  Miithcr,  3  Vlw.  Juii. 

2()69;   1    W.   Black.   633,  and  cases  373;  Aiihert  vs.   .Maze,  2   B.  it   T. 

cited   note    (n),   where  this  case  is  371 ;  Brown  vs.  Turner,  7  T.  U.  ri.'iO; 

considered  as  overruled.  Booth   vs.   IIcmI^soii,  (5  T.   \\.  •10.'); 

*3T.  R.ns.  Steers  vs.  Lashley.  id.  <H;  Mit.h.ll 

♦See  2  rhitty  onCont.  nith  .\rn  vs.  Cockhum,    2   H     Bl     379,   and 

wJ  )  .S9n  iirid  S97,  citini;  .Mclilair  v«i.  other    ciumv*    cited    in    Cannan    vs 

Gibbs,    17   Uow.  (U    S  )   232,  2.3r,:  Bry<e,  3  B.  fi  Aid    ISI.     And  see 


484  Stock-brokers  and  Stock  Exchanges. 

Thus  ill  Thwuite  vs.  Warner/  where  parties  were  engaged 
in  stock-jobbing  transactions,  in  violation  of  the  statute,  the 
court  hold  that  one  of  thorn  would  not  be  i)erniitted  to 
maintain  an  action  against  the  other  to  recover  money  paid 
to  a  Broker  under  such  transactions. 

And  the  direct  question  was  at  issue  in  Cannan  vs.  Bryce,'-^ 
where  it  was  decided  that  money  lent,  and  applied  by  the 
borrower  for  the  express  purpose  of  paying  or  compounding 
dilferences  on  illegal  stocR-jobbing  transactions  to  which  the 
lender  was  no  party,  cannot  be  recovered  back  by  him  in  an 
action  for  money  had  and  received.^ 

So,  there  are  several  cases  in  which  the  results  of  stock-job- 
bing transactions  were  represented  by  bills,  checks,  or  other 
written  instruments,  and  the  courts  have  concurred  in  the 
above  rule  of  law. 

In  Ex  parte  Buhner^  promissory  notes  were  given  by  a 
Stock-broker  for  the  balance  of  an  account  of  money  advanced 
to  him  to  be  employed  in  stock-jobbing  transactions,  contrary 
to  the  statute.  Part  of  the  consideration  consisted  of  the 
profits  of  these  transactions.  Proof  under  his  bankruptcy 
was  restrained  to  the  residue — viz.,  the  money  received  which 
he  had  applied  to  his  own  use.  So  a  bill  given  for  the  amount 
of  stock-jobbing  differences  was  held  void  in  the  hands  of  an 
endorsee  with  notice,^  and  where  it  had  been  endorsed  for 
value  after  it  became  due.^    And  a  bond  given  to  an  endorsee 


also  opinion  of  Abbott,  C.  J.,  id.  183,  ^  See  also  McKinnel  vs.  Robinson, 

and    cases    cited    and    commented  3  M.  &  W.  434. 

upon  in  Paley  on  Age.  by  Lloyd,  *  13  Ves.  Jun.  313. 

119   n.    (t).     See    also   remarks   of  *  Steers  vs.  Lashley,  6  T.  R.  61;  1 

Church,   C.   J.,   in  Woodworth  vs.  Esp.  166. 

Bennett,  43  N.  Y.  278.  •  Brown  vs.  Turner,  7  T.  R.  630;  2 

'  Esp.  X.  P.  Dii,'.  88.  Esp.  631. 

'  3  B.  &  Aid.  179. 


Stock-jobbiiia:  Acts.  485 

ill  lieu  of  :i  [Toiuissory  note  orginally  given  for  an  illegal 
stock-jobbing  transaction,  of  which  the  endorsee  had  notice 
before  he  took  the  bond,  was  held  void.*  But  a  bill  of  ex- 
change or  promissory  note  given  upon  a  stock-jobbing  trans- 
action is  valid  in  the  hands  of  a  party  who  afterwards  took  it, 
before  it  was  due,  for  value,  and  without  notice  of  the  illegal 
consideration.'^ 

To  a  declaration  for  work  done,  commissions,  and  for 
money  pjiid,  a  plea  that  the  plaintiff  was  a  stock  and  share 
Broker,  and  as  such  made  contracts  with  persons  for  the 
defendant  by  way  of  wagering,  contrary  to  8  and  0  Vict. 
0.  109,  under  the  semblance  of  pretended  sales,  respecting 
the  future  market  price  of  public  and  other  stock,  shares, 
and  scrip,  whereby  the  defendant  was  to  receive  or  pay  the 
difference  between  the  price  of  the  said  public  stock  on  the 
days  on  which  the  contracts  were  made  and  the  ])rice  on 
certain  future  days,  according  as  the  price  had  become  lower 
or  higher ;  and  that  the  work  was  done,  and  the  commission 
claimed  in  respect  of  the  making  such  contracts,  and  the 
money  paid  in  discharging  the  differences  which  had  be- 
come payable — held,  first,  that  this  was  no  defence  under 
the  statute  of  Vict. ;  secondly,  that  the  plea  disclosed  no 
defence  under  the  Stock-jol)bing  Act,  as  it  was  not  alleged 
that  each  contract  related  to  pnhlic  stock.^ 

In  an  action  by  the  assignees  of  a  bankrupt,  for  money 

'  Amory  vh.  Meryweather,  4  D.  it        '  Query,  whf^tlicr  tlic  dofoiiro  un- 

Ry.  80;  2  H.  A  Cr.  o73.  dcr  the  lutU-r  act  wiis  opoii  <iii  llio 

*  Day  vs.  Stuart,  0  Hiiifr.  \(Y.);  3  M.  plea,  rofereiicc  Ixmii;^  oxprcssly  iiiado 

6l  p.  33-1;  GrocrilHiid  vs.  Dyer,  2  .M.  to  tin;  otluT  act  fKniu'lit  vh    Kitcli. 

k  Ilyl,  422;  Arnory  vs   Mf-rywcath-  l.'iC.  H.  rmv,  1  Jur.  [ii.  h]  520;  24  L. 

er,  2  B.  .t  C.  573;  4  D.  k  R  KO      Sin  J.  C.  P.  122). 
RawlitJKS  VH.  Hall,  1  C.  &  P.  11,  aa 
to  evidence,  etc. 


486  Stock -brokers  and  Stock  Exchaiiscs. 

received  by  the  defendant  for  their  use,  it  appeared  that  the 
defendant  was  official  assignee  of  the  Stock  Exchange  for 
the  manajrement  of  the  estates  of  those  members  who, 
being  unable  to  fulfil  their  engagements  on  the  Stock  Ex- 
change, became  defaulters.  Before  the  receipt  of  the  money, 
the  bankrupt,  a  Stock-broker  and  member  of  the  Stock  Ex- 
change, was  declared  a  defaulter,  having  at  the  time  con- 
tracts open  with  the  members  of  the  Stock  Exchange,  which 
had  the  form  of  legal  contracts,  for  the  sale  and  delivery 
of  stock;  but  there  Avas  no  intention  that  stock  should  be 
delivered,  and  the  contracts  were  to  be  settled  by  the  pay- 
ment of  differences.  Under  the  rule  of  the  Stock  Exchange, 
the  defendant  collected  the  differences  upon  the  contracts 
upon  which  the  bankrupt  Avas  a  gainer,  and,  before  notice  of 
an  act  of  bankruptcy,  distributed  among  members  to  whom 
he  was  indebted  for  differences  all  said  money  except  a  small 
amount,  which  was  paid  over  after  he  was  adjudged  a  bank- 
rupt to  the  treasurer  of  a  fund  for  decayed  members,  ac- 
cording to  the  rules  of  the  Stock  Exchange.  Held,  that  the 
action  could  not  be  maintained.  As  to  the  money  paid 
over  before  the  adjudication  of  the  bankruptcy,  it  was  not 
money  had  and  received  by  the  defendant  to  the  use  of  as- 
signees of  the  bankrupt ;  and  as  to  the  money  paid  over 
after  the  adjudication  of  bankruptcy,  the  contracts,  as  well 
as  the  payment  and  receipt  of  the  differences,  being  illegal 
by  7  Geo.  II.  c.  8,  neither  the  bankrupt  nor  his  assignees 
could  maintain  an  action  to  enforce  the  contracts  or  recover 
the  sums  paid  ;  and  that  the  differences  were  not  paid  to  the 
defendant  as  the  agent  of  the  bankrupt,  but  for  the  purpose 
of  being  distributed  among  his  Stock  Exchange  creditors.* 

*  Nicholson  vs.  Gooch,  5  El.  it  Bl.    1.37.     For   actions  by   Brokers   for 
999;  2  Jur.  (n.  s.)  303;  25  L.  J.  C.  P.    commissions  and  money  laid  out  in 


Stoek-jobbiug  Acts.  487 

In  June,  1860,  the  act  of  George  II.  was  totally  repealed, 
the  text  of  the  repealing  act  clearly  indicating  that,  after  a 
trial  of  one  hundred  and  twenty -five  years,  the  English 
people  "were  satisfied  that  dealings  in  the  public  securities 
should  be  left  untrammeled,  even  at  the  cost  of  having 
business  men  speculate  in  them.  The  preamble  to  the  act 
is  as  follows :  "  "Whereas  an  act  was  passed,  in  the  seventh 
year  of  the  reign  of  King  George  the  Second,  chapter  eight, 
to  prevent  the  practice  of  stock-jobbing,  and  by  another  act, 
passed  in  the  Tenth  year  of  the  said  King's  reign,  chapter 
eight,  the  said  first-mentioned  act  was  made  perpetual. 
And  whereas  the  said  acts  impose  unnecessary  restrictions 
on  the  making  of  contracts  for  the  sale  and  transfer  of  pub- 
lic stocks  and  securities,  and  it  is  therefore  expedient  to  re- 
peal the  same:  Be  it  enacted  by  the  Queen's  Most  Excel- 
lent Majesty,  by  and  with  the  advice  and  consent  of  the 
Lords  Spiritual  and  Temporal,  and  Commons,  in  the  present 
Parliament  assembled,  and  by  the  authority  of  the  same, 
as  follows :  I.  From  and  after  the  passage  of  this  act,  the 
said  two  several  acts  before  mentioned  shall  be,  and  the 
same  are  hereby  repealed."  * 

The  repeal  of  the  act  of  George  II.  of  course  immediately 
swept  away  all  restrictions  upon  dealings  in  the  public 
stocks,  and  placed  persons  in  reference  thereto  in  the  same 
condition  as  if  they  were  dealing  in  shares  of  j)rivale  or 
other  corporations.  But  it  should  be  stated  in  this  con- 
nection that  there  is  an  existing  English  statute  relative  to 
the  sale  or  transfer  of  shares  in  any  joint-stock  banking 


trarwartioas  contrary  to  (irt  n^hititiK    Tliaokor  v.s   Hardy,  I-    l{    I  C^   15   I) 
to  waucrs,  hoc  pf>«t,  p.  ."iril.  (iS.'i,  OHS;  Lathuvo  vh.  Hurlier,  0  T. 

•  23  <t  24  Vict.  c.  28.     See  also    It   70, 


488  Stock-brokers  ami  Stock  Excliaii^es. 

company,  the  substance  of  which  is  given  below.'  The  ob- 
ject of  this  enactment  is  to  prevent  runs  on  banks,  which 
might  be  occasioned  by  a  fall  in  the  price  of  their  shares  re- 
sulting from  "short"  sales  or  gambling  transactions. 

And  by  the  Bankruptcy  Act,  1890,  section  8  (extending 
the  ])rinciple  of  the  Bankruptcy  Act,  1849,  section  201), 
the  discharge  of  a  bankrupt  may  be  refused  or  suspended,  if 
he  has  brought  on  his  bankruptcy  by  rash  and  hazardous 
speculations.'"' 

In  the  State  of  New  York  an  act  against  stock-jobbing 
is  found  among  the  Revised  Laws  passed  in  1812,  the  text 
of  which  is : 

"  That  all  contracts,  written  or  verbal,  hereafter  to  be 
made,  for  the  sale  or  transfer,  and  all  wagers  concerning 
the  prices  present  or  future,  of  an}'  certificate  or  evidence 
of  debt  due  by  or  from  the  United  States  or  any  separate 

'  By  30  Vict.  c.  29,  §  1,  it  is  en-  tract  note  as  required  by  this  act 

acted  that  all  contracts  made  after  has  been  declared  ilicfial  (see  chap- 

the  1st  day  of  July,  1867,  for  the  ter  on  Usages)  the  contract  itself  is 

sale  or  transfer  of  any  shares,  stock,  merely  void.     A  Broker  Avho  disre- 

or  interest  in  any  joint-stock  bank-  garded   the  act  was  held   liable  in 

ing  company  in  England  or  Ireland,  damages  to  his  client   (Neilson  vs. 

constituted  under  or  regulated  by  James,  9  Q.  B.  D.  546),  and  a  pur- 

any  act  of  Parliament,  royal  charter,  chaser,  to  whom  shares  were  trans- 

or  letters-patent,  issuing  shares   or  ferred,  was  held  bound  to  indenuiify 

stock,  transferable  by  any  written  the  vendor  as  to  calls   (Loring  vs. 

instrument,  shall  be  void  unless  such  Davis,   32  Ch.    D.    625).     See  also 

contract  sets  forth  in  writing  the  dis-  Perry  vs.  Barnett,  15  Q.  B.  D.  388; 

tinguishing  numbers  of  such  shares,  14    Q.    B.    D.    467;    Seymour    vs. 

stock,  or   interest  on  the    register;  Bridge,  14  Q.  B.  D.  460;  Coates  vs. 

or,  if  there  is  no  register,  the  person  Pacey,  8  T.  L.  R.  351,  474;  Mitchell 

in  whose  name  such  shares,  stock,  vs.  City  of  Glasgow  Bank,  4  App. 

or  interest  shall  at  the  time  of  mak-  Cas.  624;    Casey  vs.  Bentley,  1  Ir. 

ing  such  contract  .stand  in  the  books  Rep.  376. 

of  the  company.     .Although  a  cus-  'Ex  parte  Rogers,   13  Q.  B.  D. 

torn  of  the  Stock  Exchange  not  to  438. 
give  names  or  numbers  in  the  con- 


Stoek-jobbins  Acts.  489 

state,  or  any  share  or  shares  of  the  stock  of  any  bank,  or 
any  share  or  shares  of  the  stock  of  any  company  estabhslied, 
or  to  be  established,  by  any  hiw  of  the  United  States,  or 
any  indivichial  state,  shall  be,  and  all  sneli  contracts  are 
hereby  declared  to  be  absolutely  void  ;  and  both  parties  are 
hereb}"^  discharged  from  the  lien  and  obligation  of  such  con- 
tract or  wager ;  unless  the  party  contracting  to  sell  and 
transfer  the  same  shall  at  the  time  of  making  such  contract 
be  in  the  actual  possession  of  the  certilicate,  or  other  evi- 
dence of  such  debt  or  debts,  share  or  shares,  or  to  be  otlier- 
wiso  entitled  in  his  own  riglit  or  duly  authorized  or  em- 
powered by  some  person  so  entitled  to  transfer  the  said 
certificate,  evidence,  debt  or  debts,  share  or  shares,  so  to  be 
contracted  for.  And  the  party  or  parties  \Yho  may  have 
paid  any  premium,  differences,  or  sums  of  money  in  pur- 
suance of  any  contract,  hereby  declared  to  be  void,  shall 
and  may  recover  all  such  sums  of  money,  together  with 
damages  and  costs,  by  action  on  the  case,  in  assumpsit  for 
money  had  and  received  to  the  use  of  the  })laintilf,  to  be 
brought  in  any  court  of  record.'" ' 

This  statute  was  re-enacted  by  the  Revised  Statutes  of 
1830  in  the  language  given  in  the  notes.^  There  were  a 
number  of  decisions  under  these  New  York  statutes,  a 
reference  to  the  principal  of  which  will  be  found  jHjrtinent 
in  this  connection. 

The  act  did  not  apply  to  sales  of  distributive  shares  of  the 

'2    R.    L.    187,    §18;    Frost    vs.  rates  of  Hurh  sluircs,  or  to  ho  nthiT- 

Garksoti,  7  Cow.  (\.  Y.)  20.  wise;   etititlfd    thereto,    in    hi.s   own 

'"All   (•oiitrwU   for  tho  Bale   of  riuht,  or  to  ho  duly  adthoriziMJ,  l)y 

8tfK-kH  are  void  iiiiIosH  the  party  eon-  Hfiruo  perHoii  ho  eiititliHl,  to  soil  tho 

trar-tiiig  to  wll  tho  Rariie  shall  at  tho  oertificateH  or  wharcs  ho  rontracted 

time  of  makiiiK  nuch  rontraets  ho  in  for"  (1  Kov.  Stat.  710,  )  0). 
the  aetiial  posHoasion  of  the  cortili- 


490  Stock-brokers  and  Stock  Exchanges. 

effects  of  a  dissolved  corporation,  such  shares  not  being 
stock,  but  were  non-negotiable  things  in  action.^  It  was 
likewise  lield  not  to  apply  to  any  other  kind  of  property 
than  stocks.'* 

In  the  case  of  Frost  vs.  Clarkson,^  where  a  vendor,  by  con- 
tract in  writing,  agreed  to  transfer  one  hundred  shares  of 
stock  in  sixty  days,  and  it  appeared  that  he  owned  that  num- 
ber at  tlie  time  of  making  the  contract,  but  in  the  interval 
between  the  contract  and  time  of  transfer  sold  sixty  shares, 
leaving  him  the  owner  of  only  forty  shares,  it  was  de- 
cided that  the  statute  ^  did  not  avoid  such  a  contract,  and 
that  it  only  applied  where  the  vendor  did  not  own  the  stock 
at  the  time  the  agreement  was  made  ;  that  the  sale  was  not 
of  any  particular  one  hundred  shares,  but  any  one  hundred 
shares  in  the  company  ;  and  if  the  vendor  is  ready  to  receive 
a  transfer  and  pay,  any  other  one  hundred  shares  may  be 
procured  in  the  market.  Subsequently'^  the  Court  of  A p- 
jieals  held  that  where  a  Broker  sold  for  his  princijoal  shares 
of  a  certain  stock  which  neither  owned  at  the  time  of  the 
sale,  deliverable  at  the  oi)tion  of  the  principal  in  thirty  days 
— the  transaction  being  illegal — the  principal,  under  the 
maxim  in  pari  delicto  potior  est  conditio  defendevitis,  could 
not  recover  from  the  Broker  any  differences  to  which  he 
might  otherwise  be  justly  entitled ;  and  that  section  8,"  giving 
an  action  to  recover  back  money  paid  or  property  delivered 
did  not  aid  the  plaintiff,  as  that  section  only  applied  to  the 
parties  who  actually  paid  or  delivered  the  money  and  to  those 

>  James  vs.  Woodruff,  10  Paige,  '  7  Cow.  (N.  Y.)  26. 

541;  aff'd  2  Den.  574,  but  opinion  *  2  R.  L.  187,  §  18. 

not  reported.  '^Staples  vs.  Gould,  9  N.  Y.  520. 

'Cassard  vs.   Hinman,   1   Bosw.  «  1  Rev.  Stat.  710. 
(X.  Y.)  207. 


stock-jobbing  Acts.  491 

who  actually  received  it — viz.,  the  Broker  defendant,  and 
the  third  person  to  whom  the  Broker  had  made  the  sale  of 
the  stocks.  So  it  was  further  held  that  to  avoid  a  contract 
as  against  the  Stock-jobbing  Act  the  burden  of  proof  is 
upon  the  party  alleging  a  violation  to  show  that  when  the 
contracts  were  made  the  other  party  did  not  own,  and  was 
not  authorized  to  sell,  the  stock  contracted  for;'  that 
where  a  contract  is  valid  on  its  face  all  the  plaintiff  has  to 
do  to  entitle  him  to  recover  is  to  show  a  readiness  and  offer 
on  his  part  and  a  refusal  by  the  defendant ;  and  that  such 
a  contract  at  common  law  and  in  the  absence  of  statute 
being  clearly  valid,  the  courts  will  not  presume  that  the 
party  contracting  to  sell  stocks  was  not  the  owner  thereof 
for  the  purpose  of  rendering  the  contract  void.  The  court 
refused  to  recognize  a  contrary  doctrine  laid  down  by  the 
Supreme  Court  of  Massachusetts  in  Stebbins  vs.  Leowolf,'^ 
which  arose  out  of  a  contract  made  in  the  State  of  New 
York  .3 

But  where  one  placed  money  in  the  hands  of  a  Broker  to 
indemnify  him  for  any  losses  which  might  accrue  upon  the 
sale  of  stock,  which  the  Broker  was  to  make  for  him  on 
time,  in  violation  of  the  above  statute,  he  can  recover  it 
back  if  the  Broker  has  not  paid  it  over,  without  notice  of 
the  illegality  or  not  to  pay.' 

In  Vaupell  vs.  Woodward  •'  the  question  arose  jus  to 
whether,  in  an  action  by  a  P.roker  against  a  purchaser  for 
not  accepting  stock  sold  on  time,  it  was  not  incumbi^it  on 
the    Broker    to  prove  u  resale  l)eforc  bringing  his  action. 

'  Dykere  vs.  Townseiid,  21  N.  Y.  .Mtllviiine  vh.  Enerton,  2  Kol).  (iil.) 

57.  122. 

'67  MawH.  143.  *  flrarii  vs    Slchhiii.s,  <5  Taino  Ch. 

*  Hoe  al.'W)  Staples  vb.  Goulil  ^<if-  I'JI 

cwion  below),  f,  Saii.Jf.  (N.  V.;  Ill ;  '2  Saii-lf.  CI.    lir.,  1  JO. 


492  Stock-broktTs  and  Stock  Kxchaiiges. 

The  arginiuMil  in  favor  of  this  view  was,  that  a  Broker  with 
100  shares  of  a  particular  stock  could  make  a  dozen  or  more 
sales  of  100  shares  of  that  stock  to  as  many  different  persons 
on  time  ;  and  on  their  faihire  to  jierform,  might  sustain  a 
suit  against  them  all,  upon  ))i'oof  of  his  having  owned  the 
100  shares;  and  that,  if  all  the  buyers  should  fulfil  and 
demand  their  stocks,  his  100  shares  would  not  go  far  to- 
wards completing  the  contracts  on  his  part.  The  English 
Stock-jobbing  Act,  it  appeared,  contained  a  provision  requir- 
ing such  a  resale  on  time  contracts.  While  the  court  ad- 
mitted the  cogency  of  this  argument,  it  nevertheless  over- 
ruled the  same,  and  held  that  the  statute  contained  no 
provision  requiring  a  resale,  and  that  the  apparent  defect 
could  only  be  remedied  by  further  legislation.  In  another 
case^  it  was  further  held,  that  a  Broker  who  purchased  for 
another  by  the  express  direction  of  the  latter,  and  did  not 
himself  agree  to  sell,  was  not  within  the  act.  In  this  case 
there  was  no  evidence  that  the  sellers  were  not  possessed  of 
the  stock  when  they  agreed  to  sell  it.^ 

It  seems,  however,  that  the  statute  of  New  York  was  not 
very  efficacious  in  preventing  "  short  sales"  of  stock,^  and  in 
the  year  1858  it  was  repealed  by  an  act  which  is  herewith 
given  in  full : 

"  No  contract,  written  or  verbal,  hereafter  made  for  the 
purchase,  sale,  transfer,  or  delivery  of  any  certificate,  or 
other  evidence  of  debt,  due  by  or  from  the  United  States, 
or  any  separate  state,  or  of  any  share  or  interest  in  the  stock 


*  Genin  vs.  Isaacson,  6  N.  Y.  Leg.  Mass.   428,    where   the    New   York 

Obs.  213.  statute  is  construed. 

'  See  also   Cassarrl    vs.    Hinman,  '  See  remarks  of  Hoffman,  J     in 

14  How.    (N.   Y.)   Pr.  84;   aff'd   1  Cassard   v.-^.    Hinman,    supra. 
Bosw.  207;  Thompson  vs.  Alger,  53 


stock-jobbing  Acts.  493 

of  any  bank,  or  of  an}'  company  incorporated  under  any  law 
of  the  United  States,  or  of  any  individual  State,  shall  be 
void,  or  voidable,  for  any  want  of  consideration,  or  because 
of  the  non-payment  of  any  consideration,  or  because  the 
vendor  at  the  time  of  making  such  contract  is  not  the  owner 
or  possessor  of  the  certificate  or  certificates,  or  other  evi- 
dence of  such  debt,  share,  or  interest." ' 

By  this  act  the  selling  of  securities  "  short"  is  legalized, 
and  the  doctrine  of  the  common  law  re-established.*  The 
courts  of  New  York  have  held  that  the  effect  of  the  repeal 
of  the  statute  relating  to  stock-jobbing  takes  away  the  de- 
fence of  illegality  as  to  contracts  made  during  its  existence, 
precisely  as  if  such  statute  had  never  been  passed  ;  the  theory 
of  the  law  being  that  the  repeal  of  a  statute  which  makes 
contracts  illegal  on  the  ground  i>(  public  policy,  legalizes 
those  entered  into  during  its  continuance,  in  violation  of  the 
same.^  Xor  is  it  necessary,  in  an  action  to  recover  damages 
for  the  non-performance  of  a  contract  for  the  purchase  of 
stock,  for  the  plaintiff  to  allege  in  his  complaint  that  he  was 
the  owner  of  the  stock  at  the  time  of  making  the  contract, 
or  that  the  contract  was  in  writing.^ 

The  effect  oi  the  repeal  of  the  Stock-jobbing  statute,  how- 
ever, was  not  to  avoid  the  necessity  of  having  a  contract  for 
the  sale  of  shares  of  stock  reduced  to  writing,  within  the 
Statute  of  Frauds.     The  latter  statute  is  still  in  force,  and 

'  Ch.   131,    I.aws,    IHFiH,    repealed  "short,"  hut  this  law  \v;i.s  rcinviled 

by  the  I'ersniial  Property  Law,  and  \>y  the  CJeneral  ('orjMjratioii  Law,  iw 

re-enacted  in  amended  form  therein  amendeil  in  1W>2. 

(i  22).                               *  '  \Va.shhurn     vh.     Kranklin,     .ir) 

*  Except  in  ao  far  m  it  was  abro-  Harb    (S.  Y.)  ."iOO;  s.  c.  L3  .\b.  Pr. 

Kate*l,  aH  to  officerH  and  directors  of  1  10;  rev'd  21  How.  I'r.  51.');  11  .\b. 

railroaii    corporation.^,   by   L.    iSM,  I'r.  '.Kl. 

ch,  223,  which   made   it   a  crimitial  *  Id. 
oflcncc    for    Huch    ofhciaLi    to    hcII 


494  Stofk-brokers  and  Stock  Exchanges. 

unaffected  to  the  extent,  at  least,  of  requiring  such  a  con- 
tract to  be  in  writing  properly  subscribed.' 

In  the  State  of  Massachusetts^  there  is  a  law  which  de- 
clares that  a  contract  for  the  sale  or  transfer  of  a  certificate, 
or  other  evidence  of  debt  due  from  the  United  States,  or  a 
State,  or  of  any  stocks,  or  any  share  or  interest  in  the  stock, 
of  a  bank,  company,  city,  or  village  incorporated  under  a 
law  of  the  United  States,  or  a  State,  is  void,  unless  the  party 
contracting  to  sell  or  transfer  the  same  is,  at  the  time  of 
making  the  contract,  the  owner  or  assignee  thereof,  or  is 
authorized  by  the  owner  or  assignee,  or  his  agent,  to  make 
the  sale  or  transfer.  This  statute  has  been  before  the  courts 
for  construction  in  several  cases.^ 

In  Durant  vs.  Burt  *  the  court  held  that  where  a  Client 
gave  his  Broker  an  order  to  purchase  stock  for  him,  and  the 
Broker  does  so,  in  accordance  with  the  instructions  and  the 
usages  of  the  Stock  Exchange,  and  the  Client  subsequently 
refuses  to  take  the  stock,  should  the  Broker,  after  notice, 
sell  it,  the  latter  is  entitled  to  recover  the  loss  sustained, 
toerether  with  his  commissions.  The  court  further  de- 
cided  that  the  plea  that  the  contract  was  illegal,  because 
made  by  the  Broker  with  another  member  of  the  Stock 
Exchansre,  in  violation  of  the  above  statute,  was  no  defence 

*  Johnson  vs.  Mulry,  4  Robt.  (N.  Stebbins  vs.  Leowolf,  57  Mass.  137; 

Y.)  401.  Thompson  vs.  Alger,  53  Mass.  428; 

2  Laws,  1836,  ch.  279;  Gen.  Stat,  opinion  of  Parker,  C.  J.,  in  Howe  vs. 
Mass.  ch.  105,  §  6.  Now  re-enacted  Starkweather,  17  Mass.  243;  Sar- 
in Rev.  Laws  of  1901,  Title  XIIL  gent  vs.  Franklin  Ins.  Co.  25  Mass. 
ch.  74,  §  7.  98.     See    ako    United    States    vs. 

^  Barrett  vs.  Mead,  92  Mass.  337;  Vaughan,  3  Binn.  394.     See  also,  for 

Barrett  vs.  Hyde,  73  Mass.  160;  Du-  other  cases  interpreting  the  Massa- 

rant  vs.  Burt,  98  id.  161;  Price  vs.  chusetts  statute,  Rock  vs.  Xicholls, 

Minot,    107   Mass.   49;   Brown   vs.  85   Mass.    342;  Colt  vs.  Clapp,  127 

Phelps,  103  id.  313,  314;  Brigham  Mass.  476;  and  cases  cited  post, 

vs.  Mead,  92  Mass.  245.     See  also  *  Supra. 


stock- jobbiua:  Acts.  495 

to  the  action ;  especially  where  the  purchasing  Broker  is 
not  shown  to  have  been  aware  of  this  fact,  or  to  have  been 
aware  that  the  contract  was  illegal  untler  the  Statute  of 
Frauds.  The  case  of  Brown  vs.  Phelps  ^  also  arose  under  the 
Stock-jobbing  Statute  of  Massachusetts.  There  a  Broker, 
eraploj'ed  to  purchase  stock,  contracted  for  it  in  his  own  name 
with  J.  S.,  who  owned  it  at  the  time,  but  had  made  a  prior 
contract  for  its  sale.  The  employer,  for  groundless  reasons, 
repudiated  the  contract ;  but  the  Broker,  having  no  knowl- 
edge of,  or  reason  to  suspect,  the  prior  sale  by  J.  S.,  paid  for 
the  stock  Avhen  tendered  to  him.  Held,  that  the  statute^ 
making  void  contracts  for  the  sale  of  stocks  not  owned  by 
the  seller  did  not  debar  the  Broker  from  recovering  from 
his  employer  the  amount  so  paid. 

"  The  defendant,"  said  the  court,  "  contends  that  the  case 
of  Stebbins  vs.  Leowolf  is  a  decisive  authority  against  the 
plaintiff's  claim  in  respect  to  these  shares.  That  case  i-elated 
to  a  statute  of  the  State  of  New  York,  but  our  own  statute  is 
substantially  like  it,  and  must  receive  the  same  construction. 
In  that  case  the  plaintiff  had  contracted  to  purchase  thestocks 
as  agent  of  tlio  defendant ;  but  he  was  conversant  with  all 
the  facts  and  of  the  objections  to  the  validity  of  the  contract 
entered  into  by  him,  and  volunteered  to  pay  the  claims  <>f  the 
vendors  of  the  stock  without  any  legal  liability  on  his  part. 
Under  these  ciicumstances,  the  court  say  that  ho  must  bo 
taken  to  have  paid  the  money  in  his  own  wrong,  if  the  con- 
tract he  entered  into  was  in  fact  illegal.  And  they  hold 
that  the  burden  of  proof  was  on  him  to  show  a  legal  con- 
tract, in  onlei-  to  make  n.  ]>rima  furie  case.  The  <h'cision 
was  in  conformity  with  the  elementary  law  of  agency,  ac- 

'  103  MaKH.  .'il.'l.  ro-cimctisl   in    Wcv     I.hwh  of   l',M)l, 

'Gen.    Stut.    ch.    lOr,,     5  (i,  now    tit.  XIII.  c.  7 J,  J  7. 


496  Stock-brokers  and  Stock  Exchanges. 

cording  to  which,  if  an  agent  knowingly  pays  money  on  an 
illegal  contract,  after  it  has  been  repudiated  by  his  princi- 
pal, ho  cannot  thereby  bind  his  i)rinci|tal.  Hut  in  tlie  pres- 
ent case  no  such  knowledge  of  facts  appears  in  the  agreed 
statement.  The  plaintiffs  contracted  to  purchase  tlie  shares 
of  one  who  actually  owned  them.  They  were  not  bound  to 
presume  that  he  had  previously  contracted  to  sell  them  ;  and 
there  was  nothing  to  put  them  on  inquiry ;  nor  does  it  ap- 
pear that  they  had  any  means  of  ascertaining,  by  the  use  of 
reasonable  diligence,  what  private  contracts  Spencer  bad 
made  with  other  persons." 

Nor  is  an  agreement  to  purchase  stocks  for  another,  and 
sell  them  again  within  a  certain  time,  and  share  the  ])rofits, 
but  bear  alone  any  loss,  within  the  statute.^  And  a  con- 
tract for  the  sale  of  railroad  stock  by  one  who  had  originally 
pledged  it,  and  of  which  the  pawnee  held  the 'certificate, 
but  which  the  pawnor  had  authorized  the  pawnee  to  sell 
whenever  he  had  an  opportunity,  is  not  within  the  New 
York  statute  concerning  stock-jobbing.^ 

A  promissory  note  given  in  consideration  of  money  paid 
by  request  of  the  maker  to  a  Broker,  for  losses  sustained  in 
stock-jobbing,  negotiated  by  the  latter  for  the  former,  in  vio- 
lation of  the  statute,  is  valid  ;  but  money  paid  for  losses  in 
stock-jobbing  cannot  be  recovered  back.^  Kor  can  the  payee 
of  a  check  received  in  payment  for  shares,  which  were  not 
owned  by  him  at  the  time  when  he  undertook  to  sell  them, 
maintain  an  action  thereon  against  the  drawer.'* 

A  promise  by  the  holder  of  more  than  300  shares  in  the 
stock  of  a  corporation,  to  transfer  300  shares  whenever  he 

'  Barrett  vs.  Hyde,  7.3  Mass.  160.        '  Wyman  vs.  Fiske,  85  Mass.  238. 
'  Thompson  vs.  Alger,  53  Mass.        *  Rock  vs.  Nichols,  id.  342. 
428. 


Stock-jobbiui^  Acts.  497 

shall  acquire  enough  shares  to  enable  him  to  do  so,  and 
still  retain  a  majoi'ity  of  all  the  shares  in  the  corporation, 
is  not  within  the  statute.' 

An  interesting  case  arose  in  the  Supreme  Court  of  Massa- 
chusetts, in  Avhich  the  validity  of  speculations  in  selling  cer- 
tain stock  "  short "  in  Xew  York  was  reviewed  under  the 
statute  of  that  State.  The  case  had  been  referred  to  an 
auditor.  The  facts  showed  that  the  plaintiffs  in  1S72  were 
partners  as  Brokers  in  Xew  York.  Prior  to  that  time  the 
defendants'  testator,  D.,  had  employed  and  made  sales  and 
purchases  of  stock  through  them.  On  the  25th  of  October, 
1S72,  the  plaintiffs  received  and  executed  an  order  from  D. 
to  sell  "  short"  100  shares  of  the  "  common"  stock  of  the 
Chicago  and  Xorthwestern  Railway,  and  on  the  2Gth  they 
received  and  executed  an  order  to  sell  cUiother  100  shares. 
The  first  was  sold  at  $7(!|  per  share  and  the  latter  at  $S2|. 

The  auditor  found  that  in  "short"  sales  the  seller  is 
required  neither  to  own  nor  part  with  the  stock  sold.  The 
sellers  Broker  borrows  the  stock  and  pays  the  agreed  price, 
generally  in  a  certilied  check.  The  borrower  or  lender  may 
at  any  time  close  the  transaction,  the  one  by  tendering  and 
the  other  by  demanding  the  stock.  If  called  for  and  not  re- 
turned, the  lender  has  a  right  to  buy  in  tlu;  st(jck  at  the 
market  price,  and,  in  case  of  an  advance,  to  charge  the  bor- 
rower with  the  (liff(;rence.  With  this  course  I),  was  familiar. 
On  November  2'^,  1.S72,  O.  ct  Co.,  of  whom  the  j>laintiffs 
had  borrowed  the  st(x:k,  called  fcjr  its  return.  Since  Novem- 
ber 20  the  stock  liad  been  iaj)i(lly  rising,  and  on  the  L'lst, 
22d,  and  23d  the  plaintiffs  "  addre.s.sed "  numerous  letters 
and  telegrams  to  D.,  askiiijj:  him  t<»  conKrand  settle  or  covjt 


'  Price  VH   Miriot,  107  M.ihm.  19. 


498  Stock-brokers  and  Stock  Exclmiiges. 

his  margins.  The  i)laiiiti(rs  received  no  reply,  and  they  pro- 
ceeded to  act  on  D.'s  })i'evious  general  instructions — to  use 
their  discreti(^n  in  the  i)rotectioii  of  his  interests.  On  No- 
vember 23,  therefore,  they  bought  loO  shares  at  $150,  and, 
on  November  2."),  luO  more  at  $175  per  share,  and  with 
these  200  replaced  the  stock  borrowed  from  ().  A:  Co.  The 
loss  on  the  transaction  was  $16,G25.  The  plaintiifs  had  a 
previous  balance  of  $l,92-i.2S  to  the  credit  of  D,  The  bal- 
ance due  them  was,  therefore,  $14,700.72,  and  this  sum, 
with  interest,  was  sought  to  be  recovered  against  D.'s  es- 
tate. The  defendants  set  up  several  defences.  The  first 
was  that  the  sales  were  illegal  ;  if  not  illegal,  that  the  plain- 
tiffs failed  to  give  due  notice  to  D.  to  make  his  margin  good 
(there  being  no  evidence  that  the  letters  and  telegrams  were 
delivered),  or  that  in  default  thereof  the  plaintiffs  would 
buy  in  stock  to  replace  that  borrowed  ;  that  if  there  was 
notice  the  plaintiffs  were  only  bound  to  furnish  "  preferred  " 
stock,  which  sold  at  $87.25  on  November  23  and  25,  instead 
of  "  common ; "  and  that  the  plaintiffs  bought  stock  for  a 
less  price  in  transactions  ol  their  own  on  the  same  day. 
There  was  also  a  declaration  in  set-off  for  the  $1,924.28  had 
and  received  by  the  plaintiffs  to  the  defendants'  use.  The 
auditor  found  that  the  plaintiffs  were  entitled  to  recover  in 
the  sum  of  $18,829.09,  but  the  case  was  recommitted  to 
him  to  report  the  evidence,  which  he  did.  Coming  before 
the  Supreme  Court,  the  case  was  opened  to  a  jury  and  the 
report  of  the  auditor  submitted.  The  defendants'  counsel 
contended  and  argued  that  although  such  a  transaction,  if 
proved,  was  authorized  by  the  statute  of  New  York  which 
permitted  stock-jobbing  and  such  "  slioi'f  "'  sales,  still  a 
court  of  Massachusetts  was  not  bound  by  comity  to  en- 
force the  contract  here,  there  being  an  ex})ress  statute  of 


stock-jobbing'  Acts.  499 

the  State  prohibiting  such  transactions,  and,  apart  from 
such  statute,  that  the  transaction  was  contrary  to  public 
policy  and  good  morals.  It  was  contended  and  argued  at 
length  by  tbe  counsel  for  the  plaintiffs  that  such  a  contract 
was  not  illegal,  and  that  it  could  be  enforced  by  tbe  Massa- 
chusetts courts  ;  that  being  valid  in  New  York,  where  the 
contract  was  made,  it  could  be  enforced  here,  where  tlie 
remedy  is  sought.  In  the  Xew  York  case  of  Knowlton 
vs.  Fitch,^  the  court  bekl  that,  so  long  as  these  transactions 
are  not  prohibited  by  law,  there  is  no  reason  for  reHeving 
either  party  from  the  responsibilities  which  he  incurs  by 
engaging  in  them.  The  court  ruled  that  the  action  could 
not  be  maintained,  and  directed  a  verdict  for  the  defend- 
ants.^ 


'  52  X.  Y.  288.  cha.se  were  delivered,   it   was  held 

*  Leonard  vs.  Hart,  N.  Y.  Herald,  that  he  had  not  violated  the  statute, 

Oct.  2,  1877.      .\Ithoush  a  contract  and  that  the  transaction  was  not 

is    void    under   the    Ma.s.sachusetts  pamljling;.     Mann  vs.   Bishop,   136 

statute,    a    Stock-broker   may   re-  Ma.ss.  495. 

cover  moneys  paid  under  such  con-  An  agreement  between  two  pcr- 

tract  from  his  principal.     Jones  vs.  sons  to  share  ecjually  in  the  profits 

Ames,  135  Mass.  431.     The  sale  of  and  lo.sscs  on  stock  then  owned  bj- 

shares  before  the   date  of  delivery  one  of  them,  is  not  within  the  stat- 

does  not  make  the  contract  illegal,  ute,  nor  does  the  fact  that  it  wjus 

when  the  vendor  had  possession  at  bought  by  agents  of  the  Hrokers  of 

the  date  of  the  contnu-t.     Pratt  vs.  the  owner,  who  hiul  not  put  up  any 

American  liell  Telephone  Co.,   141  margin,  make  it  a  wagering  tran.s- 

Mass.  225.     See  Duchcmin  vs.  Ken-  action,    when   by    reitson    of   other 

dalJ,    119    M.'iss.    171;    Mcf-han    vs.  transactions,    his    cro<lit    with    th« 

Sharp,    151     .Mass.    501.     When    a  Brokers     was     go<Kl.     Hullanl    vs. 

Stock-broker,  a  memlx-r  of  the  Bos-  Smith,  139  Mass.  492 

ton  Stock  Exchange  bought  sto<-ks  When  the  Sto(-k-l)roker  had  in  his 

on  a  Saturday,  and  Wild  a  jjort ion  of  possession  certilicates  for  tlie  ninn- 

them  the  same  day  to  another  mem-  ber  of  shares  of  stock  sold  by  him, 

bcr,  and  on  Monday,  acconlirig  to  and  which  lie  was  «hilv  authoriwsl 

the  custom  of    the    Kxj-hanne,   he  by  his  principal  to  sell,  the  vtw  is 

re<'«;ive<l  the  certificates.  :iiid  writ-  not  witliin  the  statute      I-'razier  vs. 

ten  memoranda  of  the  sale  and  pur-  SinunoiLS,  139  .Mass.  531. 


500  Stock-brokers  ami  Stock  Exchanges. 

A  similar  statute  also  existed  in  Pennsylvania,'  but  it 
has  been  repealed.- 

By  tbe  Revised  Statutes  of  Illinois,^  it  is  enacted  that 
"  whoever  contracts  to  have  or  give  to  himself  or  another 
the  option  to  sell  or  buy  at  a  futui*e  time  any  grain  or 
other  commodity,  stock  of  any  railroad  or  other  com- 
pany, or  gold,  or  forestalls  the  market  by  spreading  false 
rumors  to  influence  the  price  of  commodities  therein,  or 
corners  the  market,  or  attempts  to  do  so,  in  relation  to 
any  such  commodities,  shall  be  fined  not  less  than  $10  or 
more  than  $1,000,  or  confined  in  the  county  jail  not  exceed- 
ing one  year,  or  both  ;  and  all  contracts  made  in  violation 
of  this  section  shall  be  considered  gambling  contracts,  and 
void."^ 

>  Act  of  May  22,  1841  (L.  1841,  p.  Spaids,  id.  403;  Doxey  vs.  Spaids, 

398),  §  6.  id.  549;  Ex  parte  Youn^,  (3  Hi.s.s.  53; 

'  For  decisions  under  tliis  statute,  Colderwood  vs.  McCrea,  11  III.  App. 

see  Chillas  vs.  Snyder,  1  Phila.  (Pa.)  543;  Kreigh  vs.  Sherman,  105  111. 

289;Krausevs.  Setley,  2id.32.  49;  Brand  vs.  Henderson,  107  III. 

^Ch.    38,    §130    (Cothran's    ed.  141;  Pearce  vs.  Foote,  113  111.  228; 

1881).      See    also    Hurd's    edition,  Osgood  vs.  Bauder,  75  Iowa,  550; 

(1901)  p.  614,  c.  38,  §  130.  McCorniick    vs.    XichoUs,     19    111. 

*  See    the    able    and    interesting  App.  334;  Coffinan  vs.  Young,  20 

charge  of  Mr.  Justice  Janiieson  to  a  111.  App.  76;   Higgins  vs.   McCrea, 

grand  jury  of  the  criminal  court  of  116  U.  S.  071 ;  Carroll  vs.  Holmes,  24 

Chicago,  October  12,  1881,  given  in  111.  .\pp.  453;  Griswold  vs.  Gregg,  24 

full  at  p.  635,  in  which  this  statute  111.  App.  384;  New  York  it  Chicago 

is  interpreted  and  discussed.     The  Grain  &  Stock  Exchange  vs.  Mellen, 

decisions  under  this  act  have  been  27  111.  App.  556;  Wheeler  vs.  Mc- 

ver>- numerous,  and  nearly  all  relate  Dermid,  36  111.  App.  179;  Foss  vs. 

to  dealings  in  grain,  pork,  and  other  Cummings,    149    111.   353;   Samuels 

like  commodities.  vs.    Oliver,    1.30   111.    73;    Pope   vs. 

In  the  following  cases,  such  trans-  Hanke,  155  111.  629;  Miles  vs.  An- 

actions  have  been  held  to  be  within  drews,  40  111.  -\pp.  155;  Watte  vs. 

the   statute:    Pickering  vs.    Cease,  Costello,  40  111.  App.  307;  Powell  vs. 

79  111.  328;  Webster  a^s.  Sturges,  7  McCord,  121  111.  330;  International 

111.  App.  .560;  Beveridge  vs.  Hewitt,  Bank  vs.  Vankirk,  39  111.  App.  23; 

8    id.    467;   Commercial   Bank   vs.  Kennedy    vs.    Stout,    26    111.    133; 


Stock-jobbiiiii:  Acts. 


501 


Statutes  have  also  beeu  enacteil  in  several  other  states, 
prohibiting  option  contracts,  deahngs  in  futures  or  "  on 
margin"  or  "bucket  shop"  transactions  in  stocks  or  cora- 
raodities,  where  no  delivery  is  intended. 


Wright  vs.  Cudaliy,  16S  111.  86; 
Treat  vs.  Snydecker,  92  HI.  App. 
458;  Butler  vs.  Nohe,  98  111.  App. 
625;  Pardridge  vs.  Cutler,  168  111. 
504;  Gardiner  vs.  Meeker,  169  111. 
40;  Kruse  vs.  Kennett,  181  111.  199; 
Walker  vs.  Johnson,  59  111.  App. 
44S:  Calumet  Co.  vs.  Williams.  97 
111.  App.  :?65;  Illinois  Trust  &  Sav- 
ings Bank  vs.  La  Toushe,  101  111. 
.\pp.  341;  BroT^Ti  vs.  .\lexander,  29 
111.  App.  626;  Central  Grain  & 
Stock  Ex.  of  Chicago  vs.  Bendinger, 
48  C.  C.  A.  726. 

Decisions  in  wliicli  dealings  in 
grain  and  produce  have  been  held 
not  to  be  gamljling  within  the  stat- 
ute are:  Pixley  vs.  Boynton,  79 
111.  351;  Sanborn  vs.  Benedict,  78 
111.  309;  Walcott  vs.  Heath,  id.  433; 
Cole  vs.  Milmaine,  88  id.  349;  Gil- 
bert vs.  Gauger,  8  Biss.  214;  Jack- 
son vs.  Foote,  11  Biss.  223;  Miller 
.s.  Ben.sley,  20  111.  App.  .528;  Wliite 
v.s.  Barl)er,  123  V.  S.  .392;  Roche  vs. 
Day,  20  111.  App.  417;  King  vs. 
Luckey,  21  111.  App.  1.32;  Ben.son 
vs  Morgan,  26  111.  App.  22;  Grubcy 
vs.  National  Bank  r»f  Illinois,  35  III. 
.\pp.  3.54;  Ward  vs.  VoHl)urgh,  31 
r«J.  12;  Curtis  vs.  Wright,  40  111. 
.\pp.  491;  Hitchcock  vs.  Corn  Kx- 
'liange  Bank,  40  111.  App.  411; 
Brand  vs.  Uxk,  48  111.  Apj).  390; 
Fox  vs.  Steovor,  .55  111.  App.  2.55; 
'•liniuwota  *tc.  (.'o.  vs.  Whitcbrniwt 
vc.  Co.,  160  111.  97;  I.ainwn  vs. 
Bovdcn,  160  III    613;  Hall  vs    Bar- 


rett, 93  111.  App.  642;  Cothran  vs. 
Ellis,  125  111.  496;  Pearce  vs.  Rice, 
142  U.  S.  28;  Warren  vs.  Scaulon, 
59  111.  App.  1.38;  Dillon  vs.  McCrea, 
59  111.  .\pp.  .505;  Barnett  vs.  Bax- 
ter, 64  111.  App.  544;  Bryan  vs. 
Lanison,  88  111.  App.  261;  Clews 
vs.  Jamioson,  182  U.  S.  461;  Riebe 
vs.  Helhnan,  69  111.  19;  Scanlon  vs. 
Warren,  169  111.  142;  Schlee  vs. 
Guckenheimer,  179  111.  593;  West 
vs.  Marquart,  78  111.  61;  Munns  vs. 
Donovan  Commission  Co.,  91  N.  W. 
789;  Prenti.ss  vs.  Press,  63  111.  App. 
430;  Morris  vs.  Di:jcon  National 
Bank,  .55  111.  App.  298;  Marvel  vs. 
Marvel,  9()  111.  App.  609;  Bank  vs. 
Edman.99111.  App.  235. 

Transactions  in  stocks  have  been 
held  to  be  within  the  .statute  in  the 
following  cases:  Schneider  vs.  Tur- 
ner, 1.30  111.  28;  I-ocke  vs.  Fowler, 
41  111.  App.  66;  Wolsey  vs.  Neeley, 
62  111.  Ai)p.  141;  Peterson  vs.  Cur- 
rier, 62  111.  App.  163;  afT'.l  163  111. 
528. 

.\nd  in  the  following  c;iscs  stock 
and  bond  f  rans:irtions  wore  held  not 
to  come  within  its  purview:  Clews 
vs.  Jainieson,  IS2  V.  S.  461;  Grubcy 
vs.  Nutioni'l  Bank  of  Illinois,  .35  111. 
,\pp.  .3.54;  Wolf  vs.  National  Bank 
of  Illinois,  178  111.  85;  I'bbcn  v.s. 
Bimii.'in,  ls2  III.  50S;  Taylor  vh. 
Bailey,  169  III.  IHI;  Skinner  v«. 
()Mg<M)d,  83  III    .\pp   4.51 

Then"  is  a  distinctinn  made  b(»- 
1  wccii  a  contract  for  future  tlelivery, 


502  S<()(k-lnokers  and  Stock  Excluinses. 

By  Laws  (^f  ISS7,  in  force  July  1,  1887  (Starr  &  Curtis's 
Ann.  St.,  vol.  1,  p.  loO-l),  keeping  a  bucket  shop  in  Illinois, 
to  deal  in  stocks,  grain,  etc.,  on  margins,  is  declared  unlaw- 
ful, and  penalties  of  fine  and  iuiprisonuicnt  arc  inflicted.  A 
conviction  under  this  act  for  keeping  a  bucket  shop  and 
dealing  in  grain  on  margins  therein  was  sustained,  although 
defendant  was  onl}''  agent  for  a  Chicago  firm  of  Brokers.^ 
The  intention  of  the  person  keeping  the  bucket  shop  need 
not  be  proved.^ 

A  statute  as  to  options  resembling  tliat  of  Illinois  was 
passed  in  Ohio  in  1882.^  Under  this  statute,  an  option 
contract   in    stocks   or   commodities,    where   both   parties 

where  the  time  of  delivery,  within  Cable  Co.  v.s.  Lathrop,  33  111.  App. 

fixed  and  reasonable  limits,  is  op-  400. 

tional  with  either  party,  and  a  con-  '  Soby  vs.  The  People,  134  111.  66. 

tract  whereby  either  party  is  given  ^  Caldwell  vs.  People,  67  111.  App. 

an  option  to  buy  or  sell,  at  a  future  368.     The  object  of  the  statute  is  to 

time,    grain   or   other   commodity,  prevent  gambling.     Board  of  Trade 

The  former  is  binding,  but  the  lat-  vs.    Central    Stock    &    Grain    Ex- 

ter,  as  being  a  gambling  contract,  change,  98  111.  App.  218;  afif'd  196 

is  not.     Webster  vs.  Sturges,  7  111.  111.  396.     As  to  what  transactions 

App.  560.     In  Schneider  vs.  Tur-  will   sustain   an   allegation    that   a 

ner,   130  111.  28,  it  was  held  that,  bucket  shop  was  kept,  see  Christie 

prior  to  the  pa.ssage  of  the  act,  it  vs.  Board  of  Trade,  96  111.  App.  235. 

was  lawful  to  have  or  give  an  op-  Even  although  the  maker  of  a 

tion  to  sell  or  buy  grain  or  stocks,  note  might  have  a  good  defence  in 

and  such  contracts  were  not  void  or  an  action  to  recover  the  amount,  on 

voidable  at  common  law,  but  the  the   ground   that   it   was   given   in 

statute    made    all    such    contracts  bucket  shop  transactions,  the  fact 

void   whether   it   was   intended   to  that  he  surrendered  it  and  gave  an- 

settle   by    differences    or    not.     In  other  in  lieu   thereof,    estops  him 

Booth  vs.  People,  1S6  111.  43,  afT'd  from  making  such  a  defence.     Fos- 

184  U.  S.  425;  the  statute  was  held  dick  vs.  Myers,  81   111.  App.  544. 

to  be  constitutional.  Ninety  per  cent  of  the  transactions 

Option  contracts  in  coffee,  where  on  the  Chicago  Board  of  Trade  are 

delivery  was  intended,   were  held  violative  of  this  statute.     See  cases 

valid  by  the  common  law  of  New  cited  ante,  p.  24. 

York,  where  the  contracts  were  to  ^  Bates  Annotated  Stats,  of  Ohio, 

be    executed.      Postal     Telegraph  §  6934a. 


Stock-jobhiiii;  Acts.  508 

Understood  that  differences  only  Avere  to  be  settled,  is  a 
wager,  and  moneys  paid  on  such  a  contract  are  recoverable 
under  section  4270,  and  the  defendant  cannot  avoid  pay- 
ment on  the  assumption  that  he  acted  as  a  commission 
merchant  only.^  If  one  ^ives  money  to  another  as  his 
agent  to  invest  in  illegal  option  contracts  in  wheat,  and 
the  latter  places  the  money  with  Brokers,  the  owner  may 
recover  it,  antl  resnlting  profits,  from  theagent.^ 

By  §§  6934  a  1-5  of  the  Ohio  statutes  bucket  shops  are 
prohibited,  and  a  penalty  for  gambling  in  stocks,  bonds,  pe- 
troleum, cotton,  gi'ain,  and  other  produce  is  imposed.  By 
§  4270,  moneys  paid  by  the  loser  to  the  winner  may  be 
recovered,  and,  by  §  4271,  the  loser  may  also  recover  from 
other  persons  interested.^ 

Under  the  Code  of  Georo^ia  a  contract  to  do  an  immoral 


'  Lester  vs.   Buel,    49    Oliio  St.  As  to  evidence  which  was  deemed 

240.  insufficient  to  prove  a  transaction 

'  Norton  vs.  BUnn,  39  Oiiio   St.  in  grain,  on  the  Chicago  Board  of 

1  1.5.     But   if  the  money  ha.s  been  Trade,  a  gamhUng  one,  see  Preston 

actually  invested  by  the  agent,  and  vs.  Cincinnati,  C.  it  H.  V.  II.  Co.,  36 

the  illegal  tran.saction.s  in  wheat  are  Fed.  Rep.  54. 

not  yet  clo.sed,  it  cannot  be  recovered  If  there   is  an  intent  to  deliver 

by  the  one  advancing  it.     Rogers  and  receive  stock.s  and  bond.s,  the 

vs.    Corre,    10    Ohio    Cir.    Ct.    11.  transaction  is  not  a  gambling  one, 

346.  although   the   sales   and   purcha^scs 

Option  derdinirs  in  oil  with  no  in-  are  for  speculation.     Gootlhart  v.s. 

tention   to   deliver   are   within   the  Ro.'itert,    10  Ohio    Dec.    40.      .\nd 

statute.     .Morri.s     vs.     Norton,     75  l>oth  parties  must  intend  to  gamble. 

Fed.  912.  to  make  the  transaction  of  a  wagcr- 

*  A  telegraph  company  catmot  be  ing    character.     Id..   Persons    who 

enjoine<l  fn)m  rem«jving  its  "tick-  merely  ba<'k  pambling  transaiti(in.s 

ers"     from     bucket     shop     room.s.  in  grain  and  pork  futun'si»y  furnish- 

Hnwlley  vs.   Western   Union  Tele-  ing  t<>legraphi<'   win*M   and   market 

graph  Co.,  8  Ohio  Dec.  Rep.  707;  quotations,    aiul    have   a  share   in 

(jrifhth  VB.  Same,   S  id.  571.     See  the    commissions,  are   nevort.liele»w 

KiJui     VH.    Walton,    40    Ohio    St.  li.ilile  under  sec   4271.     Rogers   vs. 

195.  i'idmund,  21  Ohio.  Cir.  Ct.  Rep.  075. 


504 


Stock-brokers  and  Stock  Kxchaiiges. 


or  illegal  thing  (§  3GGG),  or  a  wagering  contract  (§  3668),  is 
void.     Short  sales  are  also  void  (§  3537).^ 

Dealing  in  options  in  corporation  stocks  and  grain,  in 
bucket  shops,  was  also  declared  unlawful  in  1891  by  the 
Code  of  Iowa  (§  4967),  and  the  keeper  is  subject  to  fine  and 
imprisonment  (§  4968).^ 


*  A  contract  for  the  future  de- 
livery of  cotton  was  held  void  under 
this  statute,  §  3537.  Branch  vs. 
Pahner,  65  Ga.  210;  Thompson  vs. 
Cumminss,  68  Ga.  124;  and  of 
wheat,  Porter  vs.  Massengale,  6<S 
Ga.  296.  Damages  cannot  be  re- 
covered from  a  telesjaph  company 
for  failure  to  deliver  a  message  in 
such  transactions  in  coffee.  Coth- 
ran  vs.  Western  Union  Telegraph 
Co.,  S3  Ga.  25,  overruling  Tel.  Co. 
vs.  Blanchard,  OS  Ga.  299,  nor  can 
a  bank  be  compelled  to  perform  its 
agreement  to  advance  money  on 
cotton  "futures."  Moss  vs.  Ex- 
change Bank,  102  Ga.  808,  but  if  a 
bank  advances  money  through  one 
of  its  officers  on  such  transactions, 
it  cannot  recover.  Singleton  vs. 
Bank,  113  Ga.  527.  Such  transac- 
tions are  not  protected  by  the  in- 
terstate commerce  clause  of  the 
United  States  Constitution.  Alex- 
ander vs.  State,  86  Ga.  246. 

'  Prior  to  this  statute  there  should 
have  been  an  intent  to  deliver. 
Lowe  vs.  Young,  59  Iowa,  364; 
Gregorj'  vs.  Wattower,  58  Iowa,  711 ; 
Bank  vs.  Packing  Co.,  66  Iowa,  41; 
Douglas  vs.  Smith,  74  Iowa,  408. 
An  intention  by  one  of  the  parties 
was  sufficient.  Merr}-  vs.  Ochiltree, 
59  Iowa,  435,  but  there  might  be  a 
bona  fide  intent,  with  possibility  of 


paying  differences  only.  Tomblin 
vs.  Callen,  69  Iowa,  229. 

The  mere  fact  of  putting  up  mar- 
gins does  not  make  option  contracts 
in  futures  void.  The  question  is 
did  the  parties  intend  delivery. 
Union  Bank  vs.  Carr,  13  Chicago  L. 
News,  197;  4  Ky.  L.  R.  635;  Hocker 
vs.  Western  Union  Tel.  Co.,  34  So. 
(Fla.)901. 

The  hitention  of  l)oth  parties  to 
an  optional  contract  in  grain  on  the 
Chicago  Board  of  Trade  as  to 
whether  there  shall  l)e  delivery  is  to 
be  determined,  not  only  from  the 
contract,  but  from  the  conduct  of 
the  parties.  Where  the  evidence  is 
conflicting  the  verdict  of  the  court, 
sitting  as  a  jury,  will  not  be  dis- 
turbed. Press  vs.  Duncan,  69  S. 
W.  Rep.  543. 

An  option  for  future  delivery  to 
be  performed  in  Chicago  was  held 
void  under  the  law  of  that  State. 
Osgood  vs.  Bauder,  75  Iowa,  550. 
A  note  in  settlement  of  a  gambling 
deal  in  future.5  is  void  in  the  hands 
of  an  innocent  holder.  Bank  vs. 
Carroll,  80  Iowa,  11. 

Under  the  statute,  the  intention 
to  make  the  transaction  a  gambling 
one  must  be  mutual,  and  if  the 
commission  merchant  does  not  dis- 
close from  whom  he  made  the  pur- 
chases, the  jury  may  find  the  con- 


stock-jobbing  Acts.  50o 

Contracts  in  "  futures  "  in  stocks  and  certain  connnotli- 
ties,  without  intent  to  deliver,  are  declared  void  in  North 
Carolina  by  Laws  of  1S89,  c.  221,  and  persons  engaging 
therein  are  guilty  of  misdemeanor.  ]\[oney  lent  to  pay 
losses  in  such  transactions  may,  however,  be  recovered,  if 
the  lender  was  not  connected  therewith.'  When  a  commis- 
sion Broker  testified  that  certain  contracts  in  "  futures  "  in 
meat  were  speculative  contracts,  and  that  either  party 
might  demand  delivery,  there  was  a  question  for  the  jury 
as  to  whether  the  contracts  were  within  the  statute.- 

By  the  Civil  Code  of  South  Carolina,  §  2310  (§  1859,  Kev. 
Stat,  of  1883),  it  is  provided  that  future  sales  of  bonds, 
stocks,  cotton,  grain,  or  certain  other  products,  shall  be  void 
unless  the  vendor  is  the  owner,  or  unless  it  is  the  intention 
of  the  parties  to  have  actual  delivery.^ 

And  by  §  2311   in  actions  to  enforce  such  contracts,  the 

tract  a  wagering  one.  Counsel-  contract  is  vixUd  under  tlie  statute, 
man  \-s.  Reichart,  103  Iowa,  430.  and  such  contract  may  lie  made  by 
A  note  given  in  settlement  of  a  a  cotton  mill.  Sampson  vs.  Cam- 
bucket  shop  transaction  is  void  perdown  Cotton  Mills,  S2  Fed.  Rep. 
both  under  the  statute,  and  inde-  833. 

pendent    of    it.     People's    Savings        When  the  contract  is  void  imder 

Bank  vs.  GifTord,.  108  Iowa,  277.  tlie  statute,  a  principal  may  recover 

'  Ballard  vs.  Green,  118N.C.  390.  margin  deposited  with  cotton  Hro- 

'  Cantwell  vs.  Boykin,  127  N.  C.  kers.     Saunders  vs.  Phelps  Co.,  53 

64.  S.  C.  173.     .\nd  cotton  Brokers  are 

*  A  contract  for  the  future  sale  of  not  precluded,   under  the  statute, 

cotton  in  New  York,  although  valid  from  re<'overing  margins  advancini 

in  the  latter  state,   was  held  void  by    them,    where   tlicy    make    pur- 

under  the  above  statute.     Gi.st  vs.  cha«e,s  in  good  faitli,  although  tlie 

Telegrapli   Co.,  4.'>  S.  C.  31J.       Bro  principal  secretly  iulriuliii  to  speru- 

kers  in  cotton  and  grain  cannot  re-  late.      Parker  vs.   .Moore,    WTt   Fe<l. 

cover  for  advanccH,  where  contracts  R<'p.  79'.). 

made  by  them  are  void  under  this        If  the  contract  is  valici   in   New 

Btatutc.      Riordnn  vs.   Doty,  ."iO  S.  ^'ork,  where  ma<le.  it  will  nevertho- 

C.  542;  Harvey  vs.  Dotv,  54  S.  C.  !«•»«  not  be  enforce<l  in  South  Caro- 

.382.     If  it  is  the  bona  fide  intention  Una,  if  contrary  to  tin*  Htatute,  or 

of  the  parti<«  io  have  delivery,  the  jiiiMic  policy  of  that  State.     Id. 


606  Stock-brokers  and  Stock  Exchanges. 

burden  of  proof  is  on  plaintiff  to  show  lliiit  both  parties  in- 
tended delivery.^ 

Dealing  in  futures  was  declared  gambling  and  made  a 
misdemeanor  in  Arkansas  by  act  of  j\[arcb,  1883  (Sandels 
«fe  Hills'  Dig.  §§  1634-5). 

Under  this  statute  a  conviction  for  gambling  in  grain 
futures  against  a  Broker  who  kept  a  "  bucket  shop  "  was 
sustained  as  being  lyarliceps  criinhns^  and  in  a  civil  action 
he  cannot  recover  losses  on  such  dealings  in  cotton.^ 

But  when  it  plainly  appears  that  the  plaintiffs,  New  York 
cotton  Brokers,  bought  cotton  for  the  defendant,  at  his 
order,  strictly  under  the  rules  of  the  Exchange,  which  made 
them  pei'sonally  liable  for  any  losses  by  reason  of  the  de- 
cline of  the  market,  and  that  it  was  not  possil)le  for  de- 
fendant to  cease  to  perform  his  part  of  the  contract  at  any 
time,  neither  the  letter  nor  the  spirit  of  the  law  is  violated, 
although  plaintiffs  might  have  been  aware  that  defendant 
could  not  pay  for  the  cotton  (500  bales)  ordered,  as  defend- 
ant would  have  the  cotton  itself  to  pay  its  value  at  the 
time,  or  its  purchase  price,  and  he  would  therefore  bo  only 
personally  responsible  for  the  difference  in  market  pi-ices  at 
the  closing.  The  fact  that  plaintiffs  informed  defendant  that 
he  would  make  some  money  out  of  the  transaction  did  not 
indicate  an  intention  to  gamble,  as  the  mere  making  of  money 
is  not  evidence  that  the  method  of  making  it  is  unlawful.^ 

•  The   Brokers   ma}'^   recover  for  to  the  Brokers.     Parker  vs.  Moore, 

money.s  advanced,  when  the  rules  of  125  Fed.  Rep.  807. 

the    New   York   Cotton   Exchange  ^  Fortenbury  vs.  State,  47  Ark. 

provide  for  actual  delivery,  and  the  188. 

purchases  were   reported    as  made  '  Phelps  vs.  Holderness,  56  Ark. 

subject   thereto,    even   though   de-  300. 

fendant   did   not   intend    delivery,  ^  Johnston    vs.   Miller,    67    Ark. 

when  such  intention  was  not  known  172. 


Stoek-jobbiui::  Acts.  507 

When  a  contract  for  the  future  delivery  of  cotton  is  valid, 
and  the  seller  intendeil  to,  and  did,  deliver  the  cotton,  it 
must  be  shown  by  the  principal  that  he  intended,  with  iho 
knowledge  of  the  Broker,  to  gamble  in  differences.* 

By  the  constitution  of  California  (Treadwell's  Ann.  Const, 
p.  112,  Art.  IV.  section  20)  all  contracts  for  the  sale  of  the 
shares  of  the  capital  stock  of  any  corporation  or  association 
on  margin  to  be  delivei'ed  at  a  future  day  are  declared 
void,  and  moneys  paid  thereon  recoverable.  This  provision 
was  adopted  just  after  a  period  of  remarkable  stock  specula- 
tion which  resulted  in  disaster  to  many  persons,^  and  the 
court  will  take  judicial  notice  that  it  was  intended  to  put 
an  end  to  the  particular  kind  of  gambling  specified.^ 

By  the  Code  of  Tennessee,  ^  3100  (Laws,  1883,  ch.  251, 
§§  1-3),  dealing  in  bonds,  stocks,  grain,  cott(jn,  or  other 
produce  for  future  delivery,  on  margin  only  without  inten- 
tion of  either  party  to  have  actual  delivery,  is  declared 
gaming  and  made  a  misdemeanor,  but  by  acts  of  1883, 
ch.s.  105  and  lUO,  and  1885,  ch.  1,  such  dealing  becomes 
legal  if  the  Broker  takes  out  a  license.  It  is  not  necessary 
that  the  customer  should  be  licensed.'  Bi'ior  to  the  passage 
of  the  Act  of  1883,  ch.  251,  dealing  in  fntuivs,  without  an 
intention  of  hath  parties  to  have  delivery  was  void  under 
the  (iaming  Acts  (Code,  ^  2440).  The  act  made  it  gaming, 
if  either  party  did  not  intend  delivery,' and  a  note  given  by 
the  pi-ineip.il  to  his  agent  is  void  in  the  hands  of  an  inno- 
cent iiolder  for  value  befon.'  maturity."     "When  the  under- 

'  Ponder  vs.  Jeromo  Hill    Cotton  101  ChI.  .IO.');  Sliw>liy  vs.  Shiini.  S9 

Co.,  100  Fed.  Rep   373.  ("ul.   .373. 

'CaHhman  vs.  Root,  89  Cal.  382.        ♦State  vh.  Diinran,  81  Teiin    7t) 
*  III      See   nJHo    Parker   vh.   OiIh,        '  Mcflrew  vh.  City   Pro<liice  V.\- 

130  Cal    .322;  Riie<|  vs.  Cooper.  110  cimiice.  S."!  Teim.  .'572 
Cal     103;    KuIIiiH'iiti    vh.   SitiiineriH,        *  Siuxldy  vs.  Rank,  H8  Tciui   .')73. 


508  Stock-brokers  and  Stock   Fxclianges. 

standing  of  both  parties  was  that  there  was  to  be  no  delivery 
of  cotton  in  dealings  therein  for  future  delivery,  the  Broker 
cannot  recover,  even  though  he  is  a  mere  agent.'  The  wife 
of  one  who  has  lost  margins  deposited  in  grain  "futures" 
may  recover  the  amount  thereof,  under  §  2441.^ 

In  Allen  vs.  Dunham  '  it  was  held  that  margins  deposited 
with  a  firm  of  Stock-brokers  might  be  recovered,  when  it 
was  the  intention  of  both  parties  that  there  should  be  no 
delivery  of  stocks  bought  or  sold.  In  that  case  the  trans- 
actions were  large,  and  it  would  be  quite  beyond  the  finan- 
cial ability  of  the  customer,  a  bank  teller,  to  actually  pay 
for  the  stocks  purchased,  and  tiie  transactions  were  held 
gambling,  both  under,  and  without  the  aid  of,  the  statute. 
A  principal  cannot  recover  the  amount  of  a  note  given  by 
Stock-brokers  in  respect  of  dealings  in  stocks,  void  by  this 
act." 

By  ch.  81  of  L.  of  AVisconsin  of  1883  ("Wisconsin  Statutes 
of  1898,  §  2319«)  it  is  provided  that  contracts  in  "futures" 
as  to  personal  property  shall  not  be  void,  when  either  party 
intends  performance,  and  extrinsic  evidence  shall  not  be  al- 
lowed to  vary  such  contracts.^ 

The   rule   laid    down    in    Barnard   vs.    Backhaus,*   that 

*  Beadles  vs.  Ownby,  84  Tenn.  .354,  in  which  the  court  held  that 
424.  although  the  contracts  were  in  form 

^  Dunn  vs.  Bell,  85  Tenn.  581.        for  future  delivery,  they  were  in- 
'  92  Tenn.  2.57.  valid    when    no    delivery    was    in- 

*  Mechanics  Bank  vs.  Duncan,  36    tended. 

S.  W.  Rep.  887.  When  the  transactions  were  enor- 

*  It  was  held  in  Kerkhoff  vs.  mous,  and  were  carried  on  with  dis- 
Atlas  Paper  Co.,  68  Wis.  674,  that  proport/ionate  capital,  transactions 
this  statute  referred  only  to  WTitten  in  grain,  pork  and  lard  were  held  to 
contracts  and  was  doubtles.s  passed  be  gamblina:.  Atwater  vs.  Man- 
to  obviate  the  decisions  in  Barnard  ville,  81  S.  W.  Rep   985. 

vs.    Backhaus,    .52    Wis.    .593,    and       «  52  Wis.  593. 
Everingham  vs.  Meehan,   55  Wis. 


Stoek-jobbiug  Acts.  509 

to  uphold  a  grain  contract  in  "•futures"  upon  a  board 
of  trade,  it  must  atlirinatively  appear  that  there  was 
to  be  actual  receipt  and  delivery  of  the  goods,  was  not 
changed  by  §  2319«.*  And  where  the  contract  is  to  be 
partly  performed  in  "Wisconsin  and  jiartly  in  Illinois,  the 
statute  of  the  former  State  governs  in  an  action  by  Brokers 
to  recover  for  advances  and  commissions.'* 

By  the  Rev.  Stats,  of  Missouri  of  1899,  c.  15,  §  2337, 
option  dealing  in  stocks  aiul  produce  without  intention  to 
deliver  is  made  a  criminal  offence.  Intention  by  one  of  the 
parties  is  sufficient  (§  233S).  Keeping  places  for  such  deals 
is  forbidden  (§  2339).  Commission  merchants  must  furnish 
names  of  purchasers  or  buyers  (§  340).  "  Bucket  shops  " 
are  also  prohibited  (§§  2221-27). 

In  State  vs.  Logan  ^  the  keeper  of  a  place  Avhere  unlawful 
dealings  in  "  futures"  in  stocks,  grain,  etc.,  were  carried  on, 
was  found  guilty  of  violating  §  2339  (being  §  3933  of  the 
Revision  of  1889),  as  the  transactions  actually  took  place 

•  Bartlett  vs.  Collins,  109  Wis.  Mo.  12G,  that  the  provision  as  to 
477.  "bucket  shops"  did   not  apply  to 

'  Id.  comini.ssiou  merchants. 

*  84  Mo.  .\pp.  .5S4.  The  statute  A  demand  note  p\\cn  to  secure 
ajrainst  option  dealin^i  wits  held  in  continuing  option  naml)ling  tran.s- 
State  vs.  Gritzer,  134  Mo.  .512,  not  actions,  may  be  reco\ered  by  the 
to  be  unconstitutional,  and  not  to  holder,  althoufjli  he  purchased  it 
have  an  extra-territorial  effect.  In  23  daj's  after  date,  and  8uspccto<l 
that  ca.se  the  evidence  was  held  in-  that  the  note  had  been  piven  for 
sufficient  to  convict  a  f^rain  dealer  such  purposes.  Mitchell  vs.  Catch- 
for  alleged  option  dealings  with  a  ings,  2.'?  Foil.  Hep.  710.  .\s  to  u 
(,'hii-ago  finn.  vVnd  although  a  New  York  contract,  see  Edwanls  vs. 
transaction    in    grain    is    gainl»ling  Steven.son,  100  .Mo.  fiKi. 

within  the  statute,  an  agent  may  l)e        An   information   in   tljc  langujige 

convi(te<l    of    embezzling     moneys  fif  {  '2'.V.\0,  charging  defendant  with 

given    to    hun    by    the    principal.  keepiuL'  a   bucket   shop,    wiw   hehl 

State  vs.  runningham,  ]r>\  Mo    170.  siifncient   in  Slate  vs.   Kciitner.  77 

It  was  held  in  (.'onnor  vs.  Ulack,  119  S.   \V     Kcp.  .522. 


610  Stock-brokers  and  Stock  Exchanges. 

■within  the  State  in  the  pUice  kept  by  defendant,  whose 
alleged  agency  to  make  the  deals  in  Chicago  was  a  subter- 
fuge. 

By  Laws  of  Mississippi  of  18!^2,  j).  140,  Annotated  Code 
of  1802,  §  2117,  future  contracts  for  the  purchase  or  sale  of 
commodities  are  not  enforceable  unless  the  parties  intend 
delivery,  and  §§  1120  and  1121  inflict  penalties  for  dealing 
in  futures.-* 

In  "Western  Union  Telegraph  Co.  vs.  Littlejohn-  it  was 
held  that  the  act  did  not  apply  to  the  buying  and  selling  of 
stocks  for  present  and  not  for  future  delivery,  although  such 
purchases  and  sales  might  follow  each  other  hourly  in 
rapid  succession,  and  a  principal  was  entitled  to  recover 
from  a  telegraph  company  the  amount  of  damages  sus- 
tained by  him  owing  to  delay  in  the  transmissions  of  tele- 
grams between  him  and  his  Broker,  and  resultant  losses  on 
deals  in  stocks.  The  Act  of  18S2,  §§  1  and  2,  did  not  re- 
peal §  990  of  the  Code  of  1880  (§  2114  of  the  Code  of  1882), 
voiding  all  wagerino:  contracts.^ 

By  Laws  of  1899,  c.  77,  §§  1  and  2  (Dassler's  Gen.  Stat,  of 
1901,  §§  2247,  2450),  dealings  in  futures  in,  and  the  keep- 

'  It  was  held  in  Lemonius  vs.  a  note  piven  to  a  Broker  in  siich 
Mayer,  71  Miss.  514,  that  contracts  transactions  in  wheat  could  not  be 
for  future  delivery  of  cotton  could  recovered  by  the  Broker,  but  as  the 
not,  U7ider  the  second  section  of  the  statute  does  not  cover  the  case  of 
act  of  1882,  be  enforced  in  Missis-  one  loaning  money  to  pay  gambling 
sippi,  although  they  might,  as  be-  debts  in  futures,  it  was  held  in 
tween  the  firms  of  Mississippi  and  Searles  vs.  Lum,  89  Mo.  235,  that 
Liverpool  Brokers  between  whom  such  may  be  recovered  at  common 
they  were  made,  be  enforced  in  law,  where  the  lender  is  not  a  par- 
England,  in  which  country  the  ticipant.  See  also  Dillard  vs.  Bren- 
contracts  were  effected.  To  same  ner,  73  Miss.  130. 
effect,  White  vs.  Eason,  15  So.  66.  ^  72  Miss.  1025. 
And  in  Violett  vs.  Mangold,  27  So.  ^  Campbell  vs.  New  Orleans  Bank, 
875,  it  was  held  that  the  amount  of  23  So.  Rep.  25. 


Stock-jobbiiii?  Acts.  611 

ing  of  "bucket  shops"  for  dealing  in,  stocks  and  commodi- 
ties in  Kansas,  are  made  misdemeanors  punishable  by  fine 
and  imprisonment. 

Prior  to  the  enactment  of  this  statute  dealing  in  options 
in  grain  in  the  Chicago  Board  of  Trade  were  held,  on  the 
evidence  submitted  to  the  jury,  to  be  illegal,  and  the  Chi- 
cago Brokers  were  held  not  entitled  to  recover  the  amount 
of  a  note  given  to  them  by  the  customer  in  such  transac- 
tions.* 

In  Michigan,  §  11373  of  the  Compiled  Laws  of  1897  pi-o- 
hibits  the  purchase  atid  sale  of  stocks  or  produce  on  margins 
for  future  or  optional  delivery  without  any  intention  of  re- 
ceiving or  paying  for  the  property  so  bought  or  sold.^ 

Dealings  in  futures  in  stocks,  etc.,  without  intent  to  de- 
liver, and  bucket  shops,  are  prohibited  by  the  Revised 
Penal  Code  of  Texas  of  1895,  Art.  377.  (Act  of  March  1, 
1877.)  Prior  to  the  enactment  of  this  statute  such  transac- 
tions were  held  void  as  against  public  policy.^ 

Moneys  paid    to   Brokers  in  gambling   transactions   in 

'  Washer  vs.  Bond,  40  Kan.  84.  A   telegraph  company,  althoufih 

'  In  an  action  against  a  telegraph  under  contract  to  furnish  reports  of 

company  for  damages  for  failure  to  the  market  prices  of  stocks,  etc.,  to 

deliver  a  telegram  ordering  wheat  a  "bucket  shop,"  is  not  bountl  to 

for  future  delivery,  it  was  held  in  observe  such  a  contract,  Smith  vs. 

Garland   vs.    Western    Union   Tele-  Western    I'nion   Tel.   Co.,    Si    Ky. 

graph  Co.,  70  S.  W.  Kfj).  702,  that  001.     Even  though  the  ko<'j><«rs  aru 

ajs  the  claim  of  defendant  that  the  members  of   tlur  Chicago    Moan!  of 

transaction    was    a    gamliling  one,  Tradi-.      Bryant  vs.  Western  Cnion 

under  the  statute,  was  disputinJ,  the  Td.  Co.,  17  Ft>d.  U<'p.S2.'i. 

verdict  of  the  jury  in  favor  of  plain-  '  Hen.son  vs.  Flunnigan,  1  White 

tiff   would    not   be    di.sturi)e<l      In  Sc   W.'s  Civ.  Ciw.  Ct.   App    {  r>(Ml; 

Donovan    vs.    Daiber,    S2    N.  W.  Sceliip^on  vs.  Lewis,  65  Tpjc.  210; 

Uep.  843,   a   Broker  wa.M  held  cnli  Flovd  vs.  Patterson.  72  Tex.  202; 

tied  to  recover  for  lf)s.H«'s  on  wheat  <  >|iphiint    vs.     Markhain,    79   Tex, 

88  the  case  did  not  come  within  the  r>\:i. 
■tAtute. 


512  Stock-brokers  and  Stock  Exchjinges. 

cotton  futures  cannot  be  recovered,  when  they  were  })aid  to 
the  Urokers  as  principals  and  not  as  agents  of  the  phdntilT.' 

And  if  one  lends  money  to  bo  used  in  such  transactions, 
he  cannot  recover  if  he  becomes  interested  therein  or  acts 
as  the  borrower's  agent,  although,  if  he  merely  knew  that 
the  money  was  to  be  so  used,  he  might  maintain  an  action 
for  recovery.^ 

And  mere  intention  to  speculate  in  a  future  dealing  in 
bacon  is  not  illegal,  unless  there  is  an  intention  not  to  de- 
liver.^ An  indictment  under  the  statute  is  bad,  which  fails 
to  allege  that  certain  dealings  in  futures  were  with  refer- 
ence to  future  contracts  in  cotton,  about  which  the  contracts 
were  made.^ 

But  the  indictment  need  not  allege  specific  dealings  if  it 
charges  the  defendant  with  dealing  in  futures.^ 

When  from  the  testimony  of  one  of  the  parties  to  a  con- 
tract for  the  future  sale  of  bacon,  and  the  correspondence 
between  them,  it  might  be  gathered  that  actual  delivery 
was  intended,  it  was  held  error  not  to  submit  the  question 
as  to  whether  the  contract  was  void,  as  being  a  dealing 
in  "futures,"  to  the  jury.^ 

By  Act  16  of  1898,  p.  20,  gambling  in  futures  on  agri- 
cultural products  or  articles  of  necessity,  without  in- 
tent to  deliver,  is  made  a  misdemeanor  in  Louisiana.  The 
Constitution  of  1898  had  directed  the  legislature  to  enact 
such  a  statute.     When  money  is  advanced  to  invest  in  cot- 

'  Floyd   vs.    Patterson,    72   Tex.  R.  196;  36  S.  W.  Rep.  273;  Gold- 

202.  stein    vs.    State,    36    Tex.    Cr.    R. 

*  Oliphant  vs.  Markham,  79  Tex.  193. 

543.  "Fullerton  vs.  State,   75  S.  W. 

3  Burr  vs.  Davis,  27  S.  W.  Rep.  Rep  .534. 

589.  '  Heidenheimer  vs.  Cleveland,  17 

^Cothran  vs.  State,  36  Tex.  Cr.  S.  W.  Rep.  524. 


stock-jobbing  Acts.  613 

ton  futures,  and  there  is  no  evidence  that  purchases  of  cot- 
ton were  not  matle  with  a  view  to  future  delivery,  the  de- 
fence of  illegality  cannot  be  sustained.^ 

Dealing  in  futures  in  cotton,  grain,  or  anything  whatso- 
ever, is  made  a  misdemeanor  by  Indian  Territory'  Stats., 

§§  1191-2. 

In  this  connection  it  should  also  be  stated  that  contracts 
for  the  purchase  or  sale  of  gold  are  legal.'*  The  theory  of 
these  cases  is,  that  where  a  contract  is  made  for  tiic  sale  or 
purchase  of  gold,  the  latter  is  regarded  as  a  couimodity,  and 
subject  to  all  the  rules  of  law  relating  to  agreements  for  the 
purchase  or  sale  thereof — as,  for  instance,  the  Statute  of 
Frauds,  requiring  in  certain  cases  a  memorandum  in  writ- 
ing.^ So,  in  the  case  of  Appleman  vs.  Fisher,^  a  contract  to 
sell  gold  "  short "  was  upheld  as  legal. 

By  an  act  of  the  Congress  (jf  the  United  States  passed  in 
March,  18G3,^  "all  contracts  for  the  purchase  or  sale  of  gold 
or  silver  coin  or  bullion,  and  all  contracts  for  the  loan  of 
money  or  currency  secured  by  pledge  or  deposit,  or  other 
disposition  of  gold  or  silver  coin  of  the  United  States,  if  to 
be  performed  after  a  peri(jd  exceeding  tiirce  days,  shall  bo 
in  writing  or  printed,  and  signed  by  the  parties,  their  agents, 
or  attorneys,  and  shall  have  one  or  moi'e  adhesive  stamps, 
as  provided  in  the  act  to  which  this  is  an  am«'ndment,  equal 
in  amount  to  one  half  of  one  per  centum,  and  interest  at  the 

•Allen    V8.    WhitKtoiie,    3')    Lii.  Md. 

Ann.   S'lO.  '.'{J   M<1.  rilO.     I-or  r<>ii«(niction 

*  I'oalKKly  vs.  Spey«?rn,  Fji'i  S.  Y.  of  ciTliiin  coMtracts  rrlatiiiK  to  thn 

230;  Hif^elow  vs.  lieMcdict,  0  lliiti  piin-liii-sinK  or  HclliiiK  of   noltl,  hw< 

(X.  Y.),  429,  afT'd  70  .\.  Y.  202;  Kinne    vt.    F(.rd,     Mi    S     Y.    r>s7; 

Fowler  vs.  Gold  ExchauKc  IJuiik.  (57  Moyor  vh.  Cliirk,  ATt  id   '2srt 

id.  138-lJO;  Chatterton  vh    Kisk,  1  '  Manli  3.  ]sva.  2  Uri^lil  S(ut.  ut 

Ab.  NewCJua.  88;  Mills  vs.  Gould,  id.  Urge,  111;  12  V.  S  .Slut.  71U. 
O.'i 


614  Stock-!)rokeis  and  Stock  Exchanges. 

rate  of  six  per  centum  per  annum  on  the  amount  so  loaned, 
pledged  or  deposited.  And  if  any  such  loan,  i)ledge,  or  de- 
})osit,  made  for  a  period  not  exceeding  three  days,  shall  be 
renewed  or  in  any  way  extended  for  any  time  whatever, 
said  loan,  pledge,  or  deposit  shall  be  subject  to  the  duty  im- 
posed on  loans  exceeding  three  days.  And  no  loan  of  cur- 
rency or  money  on  the  security  of  gold  or  silver  coin  of  the 
United  States,  as  aforesaid,  or  of  any  certilicate  or  other 
evidence  of  deposit  payable  in  gold  or  silver  coin,  shall  be 
made  exceeding  in  amount  the  par  value  of  the  coin  pledged 
or  deposited  as  security ;  and  any  such  loan  so  made,  or  at- 
tempted to  be  made,  shall  be  utterly  void.  Provided^  that 
if  gold  or  silver  coin  be  loaned  at  its  par  value,  it  shall  be 
subject  only  to  the  duty  imposed  on  other  loans.  Provided, 
however,  that  nothing  herein  contained  shall  apply  to  any 
transaction  by  or  with  the  government  of  the  United  States  ; 
and  all  contracts,  loans,  or  sales  of  gold  and  silver  coin  and 
bullion,  not  made  in  accordance  with  this  act,  shall  be  wholly 
and  absolutely  void ;  and,  in  addition  to  the  penalties  pro- 
vided in  the  act  to  which  this  is  an  amendment,  any  party 
to  said  contract  may,  at  any  time  within  one  year  from  the 
date  of  the  contract,  bring  suit  before  any  court  of  compe- 
tent jurisdiction,  to  recover  back,  for  his  own  use  and  ben- 
efit, the  money  paid  on  any  contract  not  in  accordance  with 
this  act.''     This  act  was  repealed  in  1864.' 

The  history  of  these  Acts  seems  to  prove  conclusively 
that  they  have  not  been  effective  in  preventing  illegal 
speculation  in  stocks  and  produce.     In  England,  and  the 

'  See  13  U.  S.  Stat.  p.  303;  Laws,  stract  of  the  act  is,  however,  given 

U.  S.  1864,  ch.  173,  §  173;  see  also  in  1  Ab.  Nat.  Dig.  553,  as  late  as 

Re\'ision  of  Statutes  of  U.  S.  1874,  1871. 
2d   ed.    (1878),    p.    1085.     .\n   ab- 


Wagers  at  Cominou-Iaw.  515 

States  of  New  York  and  Pennsylvania,  after  linsferinEr  f<ir 
years  on  the  books,  scorned  and  violated  by  "the  unbridled 
and  defiant  spirit  of  speculation,"^  despite  the  earnest 
efforts  of  the  courts  to  enforce  them,  they  have  finally 
been  repealed.  In  a  recent  case,-  transactions  in  product' 
in  boards  of  trade  are  alluded  to  by  the  court  as  "  boartl 
of  trade"  transactions,  having  no  I'eference  to  actual  re- 
ceipt or  delivery  of  grain,  and  in  another  case'  the  court 
found  that  95  per  cent  of  the  transactions  of  the  Chicago 
Board  of  Trade  were  simply  gambling  dealings,  closed  im- 
mediately by  a  settlement  of  differences,  and  for  that 
reason  refused  to  restrain  the  defendants  from  using  the 
board's  quotations. 

It  is  perhaps  better  to  allow  the  evil  to  correct  itself,  as 
it  surely  does,  than  to  bring  the  administration  of  justice 
into  contempt  by  filling  the  books  with  useless  laws,  which 
are  at  all  times  openly  violated  :ind  laughed  at,  and  which 
seem  hardly  more  effective  to  prevent  the  practices  at  which 
they  are  aimed,  than  legislation  directed  against  the  laws  of 

nature.* 

III.  Wagers. 

('/.)  Af  f'lniinioii-Iinr. 

According  to  the  definition  of  liouvier,  which  h:is  been 
substantially  su.staincd  by  the  courts,  as  appears  Iroui  ihi'dc 

'  As  .Mr.  JiLstif-e  HofTinan  puts  it  CharlfH  .\.  Coii:int  in  tin-  .\tlaiitii- 

in  Cas-sard  vs.   Hiiiiiiumi,   14   How.  .Montlily  for  April,  1U1);{,  in  which  In* 

Pr.  (S.  V.)  S4,  90.  distinguishes   hftwc'c'U    triuw!»cti«>n« 

'Merrill    vs.    Garver,    90    .N.    W.  in  lujckct  Hh<>|>s,  nr  iwHoeiatioiiN  tti- 

Ilep.  C.N'eb.)  019.  tiiMi-slunl  purely  to  Kiiiuhli-   in  the 

'  Ikmrd  of  Triulc  vk.  Kiiwey,  \'l'i  price  •>[  ntockw  or  commodities,  iuid 

Fed.  Hep.  (Ind.)  72.  deuiiiiKM  in   the  Stock   itiid    PriMiuce 

*  S«re a  very  ahly  written  articli- en-  ICxchanu'C!*,    whii-h    he    Mtoutly   <li»- 

litled  "The    Fuiiction«  of  tJie  Slock  fendn,  allhounh  dilTereiicef«oiily  may 

and    Produce    I'IxchanK«;«,"  I^.V  Mr  Ix- Mettled. 


516  Stofk-brokers  and  Stock  Exchanges. 

cisions  hereafter  referred  to,  "  a  wager  is  a  bet ;  a  contract  by 
which  two  parties  or  more  agi-ee  that  a  certain  sum  of  money 
or  other  tiling  shall  be  paid  oi-  dcliveivd  to  one  of  them  on 
the  ha})pening  or  not  happening  of  an  uncertain  event." ' 
And  a  contract  U})on  a  contingenc}',  by  which  one  may  lose, 
although  he  cannot  gain,  or  the  other  may  gain,  but  cannot 
lose,  is  a  wager,  as  where  property  was  sold  at  its  real  value 
to  be  paid  for  if  a  third  person  be  elected.-^  Yet  in  Quarles 
vs.  The  State  ^  it  was  decided  that  to  constitute  a  wager  there 
must  be  a  risk  by  both  parties.^  And  in  Cassard  vs.  Ilinman  '" 
the  court  said  :  "A  Avager  is  something  hazarded  on  the  issue 
of  some  uncertain  event ;  a  bet  is  a  wager,  though  a  wager  is 
not  necessarily  a  l)et." 

Wagers,  at  common-law,  were  not  per  se  void,  unless  they 
were  calculated  to  injure  third  persons,  and  thereby  disturb 
the  peace  and  comfort  of  society,  or  lead  to  indecent  evidence, 
or  when  they  militated  against  the  morality  or  public  policy 
of  the  countr3^ 

'  Bouvier's  Law  Diet.  tit.  "Wa-  Coldridge  &  Hawksford  (London), 

gers."     See  the  definition  of  a  wa-  1S95,  pp.  4  and  26. 
gering  contract  in  Gaw  v.s.  Bennett,        ^  1  Bosw.  (N.  Y.)  207,  on  appeal. 

153  Pa.  St.  247.  There  may  be  an  element  of  risk, 

'  Shumate'.s  Case,  15  Gratt.  (Va.)  and  yet  the  contract  may  not  be  a 

653.  gambling  one.     So  held  in  Plvnnb 

3  5  Humph.  (Tenn.)  561.  vs.  Campbell,  129  111.  101,  where  it 

*  See  also  Marean  vs.  Longley,  21  appeared    that    stocke    and    bonds 

Me.   26;   Trammel   vs.   Gordon,    11  were  sold  at  a  fixed  sum,  the  Broker 

Ala.  656;  Fisher  vs.  Waltham,  4  Q.  to   pay   anj-   deficiency   imder   the 

B.   889.     If   either   of   the   parties  market  price,  or  to  keep  any  surplus 

may  lose,  but  cannot  win,  it  is  not  a  thereover  by  way  of  commission, 

wagering  contract.     Cahill  a's.  Car-  And   also  so  held   in   Phillips   vs. 

bolic  Smoke  Ball  Co.  (1892),  2  Q.  B.  Gifford,  104  Iowa,  458,  which  was 

484;  aff'd  (1893)  1  Q.  B.  256.     The  an  action  in  reference  to  a  saloon, 

chance  of  gain  or  loss  must  be  con-  the  sale  of  which  was  to  be  void  if 

templated    by    either    party.     lb.,  the  purchaser  were  obliged  to  dis- 

and     see     "Law     of     Gambling/'  continue    the    liquor    business    by 

reason  of  legislative  enactment. 


Waiters  at  ("oiiiiiion-Iaw.  517 

Some  of  the  cases  will  fully  illustrate  this  proposition.  A 
wager  on  the  future  price  of  foreign  funds  was  held  legal ; '  so 
was  one  whether  S.  T.  had  or  had  n(^t  before  a  certain  day 
bought  a  wagon  belonging  to  D.  C. ;  -  also  a  wager  on  the  age 
of  plaintiff  and  defendant ;  ^  and  likewise  a  wager  on  the  result 
of  an  appeal  from  the  Court  of  Chancery  to  the  House  of 
Lords  has  been  held  good,  no  fraud  being  intended,  and  the 
parties  having  no  power  to  bias  the  decision.'  On  the  other 
hand,  a  wager  as  to  tlie  conviction  or  acquittal  of  a  prisoner 
on  trial  on  a  criminal  charge  is  illegal  as  being  against  public 
policv  ;^  likewise  a  wager  as  to  the  event  of  a  cock-tight^  or 
a  doiT-fiirhtJ  or  whether  a  horse  can  trot  eicjliteen  miles 
within  an  hour.^  Wagers  such  as  the  above  were  held  to  be 
illegal  as  tending  to  create  disturbances  and  to  encourage 
cruelty.^  Those  upon  the  result  of  any  election  are  held  to 
be  void,  both  in  England  and  this  country,  upon  the  ground 
that  they  are  contrary  to  public  policy  and  tend  to  impair  the 
puritv  of  election.^"  But  notwithstanding  the  rule  upholding 
certain  wagers,  the  English  courts  frequently  reprehended 
such  contracts  and  expressed  their  regret  that  they  had  ever 
been  sanctioned."  Thus  Ashhurst,  J., '^questioned  whether  it 
would  not  have  been  better  for  the  public  welfare  if  the  courts 

*  Morgan  vs.  Pebrer,  4  Sco.  230.        '  Eperton  vs.  I'urzciiiuii,  1  C.  & 
'Good  vs.  Elliott,  3  T.  II.  003.    P.  613. 

*  Hus.sey  vs.  Crickitt,  3  Campb.  '  Broaden  v.s.  Murriott,  3  Bing. 
168.  (X.  C.)  88. 

*  Jones  vs.  Randul,  Cowp.  37;  and         •  Id. 

Bee    generally,    upon    tiiis    subjoft,  '•  Pars,  on  C'ont.  (Sth  ed.)  Trif)  n., 

Ix)rd  Carnpljell  in  Thackoorscydass  and  cjlscs  llu're  colh'ctefl. 

vs.  DhondinuU,  G  Moo.  P.  C.  300;  "  Koljinson  vs.  Mrariw,  10  E.  C. 

I)o<jlubda83  vs.  Ilamloll,  3  Eng.  L.  L.  R.  2r)3;  Walpolc  vs.  Sanndem,  id. 

&  Iv^.  39.  276;Gill)ert  vs.  Sykc-s,  10  KiimI.  l.V); 

*  Evans  vs.  Jonc«,  5  .M.  .t  W.  77.  Fislior  vs.  WuJtliani,  4  Q.  H.  HS». 
•Squires  vs.  Whwken,  3  Cani|)l).  "  .Mherford   \ti.    Ikard,   2  T    U 

140.  010. 


518  Stock-brokors  and  Stock  Exchanges. 

had  originally  determined  against  all  actions  to  enforce  the 
payment  of  wagers ;  and  "BuUer,  J.,  in  the  same  case,  did  not 
considei-  it  to  have  ever  been  estabhshed  as  a  position  of  law, 
that  a  wager  between  two  persons  not  interested  in  the  sub- 
ject-matter was  legal.  This,  however,  was  ohiter  dictum,  and 
he  proceeded  to  determine  the  wager  by  distinctions  taken  in 
former  cases.  And  Lord  Ellen borougii '  leans  to  the  view  of 
P>iiller,  J.  ;^  and  Le  Blanc,  J.,  in  the  same  case,  uses  the  fol- 
lowing language :  "  It  has  often  been  lamented  that  actions 
upon  idle  wagers  should  ever  have  been  entertained  in  courts 
of  justice.  The  practice  seems  to  have  prevailed  before  that 
full  consideration  of  the  subject  which  has  been  had  in  mod- 
ern times." 

The  principle  of  the  common-law  upholding  wagers  was 
adopted  in  this  country  by  the  States  of  California,^  Texas,* 
Illinois,^  Kew  Jersey ,*  Alabama,^  lowa,^  Kentucky,^  Mis- 
souri,*" North  Carolina,"  and  Delaware  ;^^  and  the  United 
States  court  in  Grant  vs.  Hamilton  "  held  that  a  wager 
fairly  made  was  recoverable  at  common-law.  And  the 
early  tendency  of  the  New  York  courts  was  to  sustain 
wagers  as  valid  within  the  rules  of  the  common-law.^* 

*  Gilbert  vs.  Sykes,  16  East,  159.        *  Sipe  vs.  Finartj^  6  Iowa,  394. 
^Atherford  vs.   Beard,   2  T.   R.        '  Greathoiise   vs.   Throckmorton, 

610.  7  J.  J.  Marsh.  (Ky.)  17. 

'Johnston  vs.  Russell,  37  Cal.  »» Waddle  vs.  Leber,  1  Mo.  635. 
670.  "  Shepherd  vs.  Sawyer,  6  N.  Car, 

*  As  to  horse  racing  only,  but  not  26. 

as  to  other  kinds  of  wagers.   Wheel-  '^  Dewees  vb.  Miller,  5  Harr.  347. 

er  vs.  Friend,  22  Tex.  683;  Monroe  "  3    McLean    (7th    Circ.    Mich.), 

vs.  SmeUy,  25  Tex.  586.  100. 

'Smith  vs.  Smith,  21  lU.  244.  ''  Bunn  vs.  Rikor,  4  Johns.  426; 

'Trenton,  etc.,  Ins.  Co.  v.  John-  Campbell  vs.  Richardson,  10  id.  406, 

son,  4  Zabr.  (N.  J.)  576.  And  see  the  later  case  of  Zeltner  vs. 

'  Tindall  vs.  Childress,  2  Stew.  &  Irwin,  25  App.  Div.  228,   holding 

P.  (Ala.)  250.  that  wagering  contracts  were  not; 


Wagers  under  Existing  Laws.  619 

{b)    If'nf^f'rs  under  Existing  Laws. 

In  England  the  strictures  of  the  courts  upon  wagers  led 
to  the  passage  of  a  statute'  in  the  yeiir  1845,  by  §  18  of 
which  it  is  provided  that  "all  contracts  or  agreements, 
whether  by  parole  or  in  writing,  by  way  of  gaming  or 
wagering,  shall  be  null  and  void ;  and  no  suit  shall  be 
brought  or  nuiintained  in  uny  court  of  law  or  equity  for 
recovering  any  sum  of  money  or  valuable  thing  alleged  to 
be  won  upon  any  wager,  or  which  shall  have  been  deposited 
in  the  hands  of  any  person  to  abide  the  event  on  which 
such  wager  shall  be  made."  ^ 

By  the  Revised  Statutes  of  New  York,'  "  All  wagers, 

invalid  at  common-law  unless  they  on  contract,  but  for  recovery  of 
were  against  public  policy,  and,  in  moneys  to  which  defendant  has  no 
the  absence  of  proof  to  the  contrary,  title.  VVillard  vs.  Doran  &  Wriplit 
that  the  same  rule  prevailed  in  an-  Co.,  48  Hun,  402.  Chapter  IX  of 
other  State.  title    X    of    the    Penal    Code  also 

'  8  &  9  Vict.  c.  109.  contains  provisions  against  gaming. 

*  For  decisions  under  statute  of  It  was  hold  in  People  vs.  Todd,  5S 
Vict,  consult  Higginson  vs.  Simp-  Hun,  44G,  that  although  contracts 
son,  L.  II.  2  C.  P.  D.  76;  Beestoa  vs.  made  by  one  who  kept  a  room  with 
Beeston,  L.  R.  1  Ex.  D.  13;  Inch-  a  stock  quotation  ticker  in  it,  indi- 
bald  vs.  Cockerill,  4  Jur.  (n.  s.)  G93.  eating  the  fluctuation  of  prices  on 
See  also  Grizewood  vs.  Blane,  11  C.  the  New  York  Stock  Exchange, 
B.  539;  Rees  vs.  Fernie,  4  X.  R.  539;  were  wagering  ones,  there  being  no 
Hibblewhite  vs.  Mc.Morine,  5  M.  &  intention  to  deliver  stocks,  thoy  <lid 
W.  462;  Barry  vs.  Croskey,  2  J.  &  not  violate  .sec.  343  of  the  Penal 
H.  1;  Ex  parte  Phillips,  and  Ex  Code,  making  it  a  mi.sdeinoanor  to 
parte  Marnham,  2  De  G.  F.  &  J.  keep  a  room  for  gami)ling. 
634;  Loughton  vs.  Griffin,  (1895)  Thereupon  that  section  was 
A.  C.  104.  amended  by  L.  1S,S9.  c   428,  which 

'1  Rev.  Stat.  661,  §8.  Tran.sac-  in  elTect  made  the  keeping  of  a 
tions  in  futures  in  wheat  without  burket  shop  a  niiRdeniennnr.  Un- 
intent  to  deliver  are  void  under  der  this  section  iw  so  amended,  a 
this  statute.  Copley  vs.  Doran  fi.  conviction  against  the  ki-oprr  of  a 
Writrht  Co  ,  17  N'.  V.  St.  Rep  601,  "bucket  nhop"  wft.s  nustniiu»d 
afT'd  49  Hun.  610.  Hut  an  action  I'<f>pl«'  vs  Wade.  59  Sup  M40 
for  rofoverv  of  moneys  paid  to  a  Tin*  roiiHtitution  of  the  State  «»f 
Broker  in  such  transactions  is  not    New  York,  as  uinendeil  in  18U4,  oUo 


620  Stock-brokers  and  Stock  Kxcluiiigcs. 

bets,  or  stakes  made  to  depend  upon  any  race,  or  upon  any 
gaming  by  lot  or  chance,  casualty  or  unknown  or  con- 
tintrcnt  event  whatever,  shall  be  unhiwful.  All  con- 
tracts  for  or  on  account  of  any  money  or  property  or 
thing  in  action  so  wagered,  bet,  or  staked  shall  be 
void." 

It  is  provided  by  statute  in  Massachusetts  (L.  1890,  c.  437, 
L.  1901,  c.  459,  now  embodied  in  the  Revised  Laws  of  Mas- 
sachusetts, Revision  of  1901,  c.  99,  §  4)  that  a  recovery  may 
be  had  by  any  one  contracting,  upon  credit  or  margin,  to  buy 
or  sell  securities,  when  no  actual  sale  is  intended,  and  such  in- 
tention is  known  to  the  other  party,  whether  principal  or 
agent,  unless  an  actual  sale  or  purchase  has  been  made.  Sec- 
tion 5  protects  the  rights  of  third  parties.  By  §  6,  the  fact 
that  the  seller  did  not  own  the  securities,  and  that  settle- 
ments were  made  without  the  completion  of  the  sale,  shall 
he  prima  facie  evidence  that  there  should  be  no  sale.  And 
§  7  defines  securities.  This  statute  was  held  to  be  consti- 
tutional as  intended  to  suppress  gambling.'  The  statute 
of  1890,  was  amended  and  not  repealed  by  the  statute  of 
1901.^  And  a  declaration  following  the  language  of  the 
amendment,  as  to  transactions  prior  to  its  enactment,  is 
not  demurrable.^  And  after  a  cause  of  action  under  the 
statute  had  accrued  it  might  be  released  under  seal.^  But 
to  recover  collateral,  a  plaintiff  nmst  prove  that  he  had  no 
intention  to  sell,  and  that  such  was  known  to  the  defend- 

prohibits  all  kinds  of  gambling,  and  '  Wilson  vs.  Head,  69  N.  E.  Rep. 

directs  the  legislature  to  pass  ap-  317. 

propriate  laws  in  respect  thereto.  ^  Loughlin  vs.   Parkinson,  69  N. 

Art.  I.  §  9.     Mone}'  deposited  upon  E.  Rep.  319. 

the  event  of  a  wager  may  be  recov-  *  Wall    vs.    Metropolitan    Stock 

ered.     3  R.  S.  (Sth  ed.)  p.  2218.  Exchange,  168  Mass.  282;  Shea  vs. 

•Crandellvs.White,  164Mass.  54.  Same,  ib.  284. 


Wagers  uuder  Exist  iiiy;  Laws.  5*21 

ant,*  and  that  the  defendant  acted  as  phiintiff's  agent  or 
employee,  and  that  defendant  performed  the  service  for 
an  agreed  compensation  ;  -  and  a  set-olf  cannot  be  allowed 
defendant  Stock-brokers  for  the  amount  of  prolits  pre- 
viously paid  plaintiff.^  When  a  Broker  actually  buys 
securities,  and  the  principal  so  understands,  and  that  the 
Broker  will  seU  them  when  the  customer  requests,  the 
transaction  is  not  within  the  statute,  although  the  principal 
intended  to  gamble  in  differences.* 

And  although  the  statute  (§  2)  only  gives  the  loser  a 
right  to  recover,  in  an  action  on  contract,  any  money  paid, 
or  the  value  of  anything  delivered,  equity  will  enable  him  to 
enjoin  the  foreclosure  of  a  mortgage,  and  the  surrender  of 
a  note,  given  to  a  Stock-broker  to  secure  losses."*  The  main- 
tenance of  an  "  exchange  "  telephonic  communication  be- 
tween "living  rooms"  in  which  was  a  "ticker,"  ami  a 
Stock-broker's  office,  and  the  general  course  of  the  dealings 
between  the  parties,  were  held  to  tend  to  show  that  the 
Brokers  had  reasonable  cause  to  believe  that  a  Client  would 
not  carry  out  her  contracts."  When  money  is  lent,  with  the 
lender's  knowledge,  to  speculate  in  stocks  in  "  bucket  shoj)" 
transactions,  and  the  lender  is  to  receive  a  moiety  of  the 
prolits,  a  bill  of  sale  to  secure  the  loan  is  void."  As  the 
statute  was  intended  to  suppress  gambling  in  stocks,  it  can- 
not be  nullified  by  an  agreement  by  the  Client  to  save 
the  Broker  harmless  from  the  conse(|nencc  of  its  violation, 

'  Davy  V8.  BanRH,  174  Mas-s.  2.3S.  »  Uico  vs.  Winslow,  (jr>  S.  E.  Hop. 

'  BinKham   vs.   Scott,    177   .Mus-s.  3GG. 

208.  •  Ballou  vs.  Willet,  02  N.  E.  Hep. 

'  Lyons  vs.  Coc,   177   Mass.  .'{S2.  lOGI. 

♦Rire  VH.  Winslow,  «2  N.  K.  K«'p.  '  ManU-ii   vs.    I'hillips,    KM   IVd. 

10.'i7;    Post   vs.    Leiand,  09  N.    E.  K.-p.  I'.Ki. 
Rep.  301. 


522  Stock-brokers  and  Stock  Exchanges. 

and  equity  will  not  restrain  an  action  by  the  Client  to  re- 
cover advances  by  reason  of  such  agreement.'  When  no 
stock  was  deUvered  under  a  contract,  which  was  terminated 
by  the  decline  in  the  market  value  of  the  securities  to  the 
amount  of  the  deposit,  which  thereupon  became  the  Broker's 
property,  it  was  held  in  Marks  vs.  Metropolitan  Stock  Ex- 
change- that  this  was  a  "settlement  "  within  the  meaning 
of  §  G,  importing  that  the  principal  had  no  intention  to  per- 
form the  contract,  and  that  the  Broker  had  reasonable  cause 
to  so  believe.  A  Stock-broker  sued  for  recovery  of  margins 
deposited  in  breach  of  the  statute,  is  not  entitled  to  a  gen- 
eral verdict,  because  some  of  the  securities  may  not  have 
been  securities  within  its  meaning,  when  other  securities 
dealt  in  came  within  its  purview,  nor  can  he  claim  that  the 
transactions  were  through  an  agent,  without  proof  of  such 
agency,  when  the  evidence  proved  the  agency,  and  the 
wagering  character  of  the  contracts  in  violation  of  the  stat- 
ute is  shown  by  the  cross-examination  of  plaintitf,  in  which 
he  testified  that  speculation  in  the  rise  and  fall  of  prices 
only  was  intended,  although  such  evidence,  if  offered  by 
plaintiff,  would  be  incompetent.^  When  the  testimony 
clearly  shows  that  there  was  no  intention  to  receive  or 
deliver  stocks,  the  transaction  is  within  the  statute  and  the 
words  in  §  6,  "  the  fact  that  settlements  had  been  made  " 
refer  to  settlements  in  the  transaction  in  suit,  and  not  to 
previous  settlements.*  In  Win  ward  vs.  Lincoln^  §6  was 
held,  in  stock  transactions  which  originated  in  Rhode  Is- 
land, to  have  no  extra-territorial  effect  and  therefore  not 

'  Corey  vs.  Griffin,  181  Mass.  229;       ^  Allen  vs.  Fuller,  6.5  X.  W.  Rep. 
63  N.  E.  Rep.  420.  31. 

M81  Mass.  251;  63  N.  E.  Rep.       <  Thompson  vs.  Brady,  65  N.  E. 
410.  Rep.  419. 

'  51  Atl.  Rep.  106. 


Wagers  under  Existing  Laws.  623 

applicable  to  an  action  in  the  Rhode  Island  courts  respect- 
ing such  transactions. 

In  the  Massachusetts  statute  (c,  99,  Rev.  Laws  of  1901, 
supra)  it  is  also  provided  (§§  1-3),  that  money  lost  at  gam- 
ing may  be  recovered,  but  these  sections  only  relate  to 
gaming  as  that  term  is  ordinarily  used,  as  is  evidenced  by 
§§  4-T,  supra,  as  to  stock  dealings. 

In  Ohio  it  is  enacted  (Dates'  Annotated  Stats.  2d  ed. 
§  6938),  that  "  whoever  plays  at  any  game  Avhatsoever  for 
any  sum  of  money  or  other  property  of  any  value,  or  makes 
any  bet  or  wager  for  any  sum  of  money  or  other  property 
of  any  value,  shall  be  fined  not  more  than  $10<>,  or  impris- 
oned not  more  than  six  months,  nor  less  than  ten  days,  or 
both."  And  by  ,^  42 To,  money  lost  in  wagering  mav  be 
recovered.*  And  Iowa  (Code  of  1S97,  §4904),  Indiana  (Re- 
vision of  18S1,  with  amendments  to  1902,  §  2081,  Horner's 
edition),  "West  Virginia  (Warth's  Code  of  1899,  cs.  97, 
151)  and  Wisconsin  (Statutes  of  1898,  §  4535)  have  similar 
statutes. 

The  Revised  Statutes  of  Indiana  (§  4950,  Horner's  edition, 
§  6C75,  Burn's  edition)  also  ])rovide  tliat  notes  and  securities 
given  in  wagering  transacti(ms  shall  l)e  void.  This  section 
was  held  not  applicable  to  moneys  loaned  to  gamble  in  gniin 
options  at  sometime  in  the  future.  The  statute  is  conlineti 
to  a  case  where  money  is  loaned  at  the  time  of  the  wager,' 
In  Pearce  vs.  Dill  '  it  was  held  that  option  dealings  in  gniin 
in  Illinois  without  intention  to  deliver  were  void  as  against 
public  policy,  and  that  a  wife  was  entitled  to  recover  from 
the  keeper  <jf  a  l)U(ket  sh<>|),  aiul    fnna  a  bajik,  moneys  <»f 

•  See  LucaA  vs.   n.iri..r,  2  J  ( )lii<.        '  I'liuik  vs.  Jiirkuon,  128  Ind.  I'JO. 
St.    :J2S;    HouLstoiu;  vh.   .Moore,    10        '  1  !'.»  Iml.  LJi'i. 
Ohio  Dec.  Ilep.  275. 


624  Stcuk-lnokers  and  Stock  Exchans^es. 

licr.s  deposited  in  tiie  bank,  paid  by  her  husband  as  her 
trustee,  in  such  dealings.  Section  4951  of  the  Indiana  Stat- 
utes, Horner's  edition  (§  GG70,  Burn's  edition),  also  pro- 
vides that  money  lost  by  betting  on  any  game  may  be  re- 
covered by  suing  therefor  within  six  months.  It  was  held 
in  Boyce  vs.  OVDell  Commission  Co.  ^  that  money  lost  by 
plaintiff  in  "  bucket  shop  ''  transactions  could  not  be  recov- 
ered under  this  section,  as  sucii  transactions  were  not  "bet- 
ting on  any  game"  within  the  meaning  of  this  section. 

In  Pennsylvania  gaming  contracts  are  void,  and  money 
lost  at  a  game  or  play  of  address  or  hazard  may  be  re- 
covered (Act  of  April  22,  1T94).2  In  Merriam  vs.  Stock 
Exchanee^  it  was  held  that  the  act  did  not  cover  stock, 
grain,  and  oil  transactions  on  margins,  where  differences  only 
were  settled,  such  being  entirely  unknown  at  the  passage 
of  the  act,  and  money  paid  by  the  customer  to  the  Broker 
could  not  be  recovered  under  the  9th  section  of  the  act,  the 
transaction  being  a  gambling  one,  and  against  the  policy  of 
the  law,  and  therefore  void,  although  if  the  customer  had 
not  paid  it,  he  could  not  be  compelled  to  do  so.  To  the 
same  effect  is  Hirst  vs.  Maag.*  An  innocent  holder  for  value 
of  a  negotiable  note  given  in  a  stock  gambling  transaction 
may  recover  the  same  before  maturity.'  Equity  will  not 
compel  the  return  of  notes  (in  the  hands  of  a  honafide  pur- 
chaser for  value  without  notice)  given  by  a  customer  to  his 
Broker  to  cover  losses  in  stock  gambling  transactions.''' 
Election  bets  are  punishable  by  fine  in  Kansas  (Dassler's 

»  109  Fed.  Rep.  758.  *  13  Pa.  Sup.  Ct.  Rep.  4. 

^  See   Edgell   vs.   McLoughlin,    6  *  Northern     National     Bank    vs. 

Whart.  176,  overruling  Morgan  vs.  Arnold,  1.S7  Pa.  St.  356. 

Richards,  1  Bro.  171.  « .Vlbertson  vs.  Loughlin,  173  Pa. 

» 1  Pa.  Co.  a.  R.  478.  St.  525. 


Wagers  under  Existing  Laws.  525 

Gen.  Stats,  of  19<U,  §  2252)  and  gambling  is  prohibited  by 
§§  2228  and  2233. 

In  Missouri  (Rev.  Stats,  of  1899,  c.  32,  §§3424,  3432) 
money  lost  on  wagers  may  be  recovered,  if  sued  for  within 
three  months  after  the  cause  of  action  has  accrued.  This 
statute  does  not  apply  to  gambling  transactions  in  grain, 
as  money  lost  therein  is  not  lost  "at any  game  or  gambling 
device."  '  Even  if  it  does,  the  action  must  be  brought  within 
the  three  months'  liniitation.^  A  note  in  frrain  iramblins: 
transactions  in  the  hands  of  an  innocent  holder  for  value,  is 
enforceable.^ 

In  New  Hampshire  (Public  Stats,  c.  270,  §  1.6)  wagers 
are  declared  void.  And  an  agreement  in  which  the  parties 
have  no  interest,  except  that  created  by  such  agreement, 
shall  be  deemed  a  wager  (§  18),  and  money  received  there- 
under may  be  recovered  (§  17).* 

In  Maine  all  wagers  are  held  to  bcA^oid."'  By  the  statute 
of  that  State  gambling  is  punishable  by  fine  (Rev.  Stat,  of 
Maine,  c.  12."),  §  2),  and  securities  given  for  gambling  debts 
(except  in  the  hands  of  innocent  holders)  are  void  (lb.  §  lO). 
In  O'Rrien  vs.  Lwjues"  it  was  hekl  that  a  customer  could 

'  Craw-ford   vs.   Spencer,   92  Mo.  note,  Id.;  Crawford  vs.  Spencer,  92 

498;    Connor    v.s.    Black,    132  Mo.  Mo.  498;  1  Am.  St.  Rep.  745,  and 

1.50.  note,  Ijut  the  IllinoLs  statute  does, 

*  Connor  vs.  Black,   132  Mo.  1,')(>.  even  in  the  hands  of  an  innocent 

See  also  Batik  vs.  IlarrLson,  10  I*"ed.  holder.     Root  vs.  Merriain,  27  Fctl. 

Rep.  213,  deciding;  that  the  .statute  Rc|).   900,    and    ca.ses.  cited    in    ajv 

d(xsi  not  apjiiy   to  "options."  jx'ndcd  note. 

'Third  .National  Bank  vs.  Tin.s-  *  .Marj^ins  in  stock  (ran-sactions 
ley,  11  .Mo.  App.  I9S;  Third  Na-  when;  there  is  to  he  no  deliverj', 
tional  Bank  vs.  Harrison,  10  Fed.  may  lio  rocovereil  under  these  sec- 
Rep  243;  Sondheim  vs.  Ciilliert,  1 17  tions.  Wheeler  vs.  Kxchanne,  50 
Ind.  7i;  10  Am.  St.  Rep.  23.  and  Atl.  Rej).  751. 

note.      Neither  the  statiitj's  of  .N'ew  '  Lewis  vs.  Littlefield,  15  .Mc.  233. 

Vork  nor  Indiana  invali«late  such  a  'Sl   Mc    \i\ 


526  Stock-brokers  and  Stock  Exch.aiif^es. 

not  recover  deposits  made  with  a  ])i'oker  to  gamble  in  grain, 
even  though  tlic  latter  represented  that  the  purchases  were 
to  be  made  of  a  tirni  ol  Chicago  Brokers,  when  they  were 
not  in  fact  so  made.  V>nt  in  Nolan  vs.  Clarke^  it  was  held 
tliat  a  principal  iiiiglit,  under  §  8,  recover  from  a  Broker, 
payments  made  in  "  futures  "  in  corn,  when  delivery  was 
not  intended,  even  thougli  the  forms  of  sale  and  purchase 
were  observed,  and  although  the  Broker  was  agent  f(;r  a 
Boston  company,  when  he  did  not  disclose  such  fact  to  his 
principal.  It  was  held  in  Morris  vs.  Telegraph  Co.^  that 
as  dealings  in  stocks  between  Broker  and  customer  although 
in  form  valid,  were  gambling  transactions,  there  being  no 
intent  to  make  delivery,  the  customer  could  not  recover 
damages  from  a  telegraph  company  for  non-delivery  of  a 
telegram  by  which  loss  resulted  to  him  in  such  transac- 
tions. 

In  Vermont  money  paid  to  the  winner  of  a  wager  can- 
not be  recovered.^  The  statutes  as  to  Avagering  and  gam- 
bling (§§  5133-9),  permitting  recovery  from  the  winner, 
only  apply  to  sports  or  games.^  It  was  held  in  Soules  vs. 
"Welden  National  Bank''  that  a  Commission  Broker,  acting 
for  a  New  York  stock-broking  company,  could  not  recover 
deposits  made  by  him  in  a  bank,  as  the  company's  agent, 
pursuant  to  an  arrangement  between  him  and  the  New 
York  company,  on  the  ground  that  the  transactions  were 
wagering  ones.  The  keeping  of  a  "  bucket  shop ''  to  deal  in 
stocks  and  commodities,  is  made  a  criminal  offence  in  Ver- 
mont by  L.  1888,  No.  147,  §  1  (Vermont  Stats.  §§  5128-32). 
A  conviction   under  this  statute  was  not  sustained,  when 


•  91  Me.  33. 

^Id. 

2  94  Me.  423. 

s  61  Vt.  375 

3  West  vs.  Holmes,  26  Vt.  530. 

Wagers  under  Existiuc:  Laws.  527 

the  indictment  did  not  sufficiently  connect  the  defendant 
with  the  illegal  offence  charged.^  In  State  vs.  Corcoran  ^ 
it  was  held  that  an  indictment  which  alleged  that  the  re- 
spondent kept  a  ''  bucket  shop,"  in  which,  following  the 
language  of  the  statute,  he  conducted  the  business  thereby 
prohibited,  was  good. 

By  the  General  Statutes  of  Connecticut,  §  4531,  wagering 
contracts  are  declared  void,  and  by  §  1920,  municipalities 
may  prohibit  bucket  shops  and  dealings  in  margins.  A 
speculative  contract  in  stocks  is  not  necessarily  illegal  as  a 
gambling  contract.^ 

Although  the  gambling  statute  of  Rhode  Island  (General 
Statutes,  ch.  92)  does  not  forbid  gambling  in  stocks,  such 
transactions  are  void  as  against  public  policy  when  there  is 
to  be  no  delivery,  even  though  the  transactions  have  the 
appearance  of  a  sale,  or  of  a  sale  and  resale.^  If  transactions 
in  stocks  are  void  as  against  public  policy  in  Rhode  Island, 
they  cannot  be  enforced  in  that  State,  although  valid  under 
L.  1S90,  ch.  437,  of  Massachusetts,  in  which  State  the  con- 
tract was  executed.^ 

By  the  General  Statutes  of  New  Jersey,  p.  1606,  §  1,  all 
wagering  is  declared  unlawful.  Speculations  in  stock  on 
margins,  are  within  this  statu te.** 

'  State  vs.  McMilhiii,  37  All.  Uep.  both  States,  as  there  was  an  intent 

278.  to  have  actual  <lt'livery,   alth()Uf;li 

*  73  Ver.  401.  tliore  wjls  in  fact  no  actual  jjurclixse 

*  Hatch  vs.  DoukIjus,  4S  Conn,  or  delivery,  and  altliou>;h  the  prin- 
IIG;  Innraliani  vs.  Taylor,  58  id.  cipjil  did  not  intend  to  receive 
'A}',i;  SkifT  vs.  Stoddard,  03  i<l.  211.  stocks  purcha.sed,  or  pay  therefor, 

*  Fla^;;  VH.  Gilpin,  17  It.  I.   10.  where  he  intendiMl  that  the  Broker 

*  Winward  V8.  Lincoln,  FA  Atl.  slxtuld  receive  an<l  pay  for  them,  fir 
Uep  1(K5.  In  that  cjwc,  however,  it  the  Hroker  had  reason  to  believe  he 
van  held  that  a  Hroker  niinht  re-  had  such  intention.     Id. 

cover  moneys  due  from  a  customer  *  Tantum  vs.  .\rnohi,  ITiStew.  fl'J; 
in  Huch  tratwactiuiu*,  \>y  the  law  of    l•"la^;^;  vs.  Baldwin,  11  Stew.  Iu|.21U. 


528  Stock-brokers  and  Stock  Exclumses. 

Gaming  on  any  contingency  is  ulso  dtrlared  unlawful  in 
the  State  of  Maryland.  Poe's  Supp.  to  Public  Gen.  Laws, 
Art.  27,  §  124«. 

By  General  Statutes  of  Minnesota,  cli.  09,  §  13  (now- 
General  Statutes,  1804,  §  6593),  money  lost  at  play  or 
gambling  may  be  recovered.  It  was  licld  in  Dows  vs. 
GlaspeP  that  this  statute  did  not  relate  to  "  option  deals," 
and  that  money  paid,  as  margins,  in  such  transactions  in 
grain,  could  not  be  recovered,  in  a  counterclaim  by  de- 
fendant customer  who  relied  on  the  statute.  It  was  also 
lield  that  when  no  proof  of  the  statute  Avas  offered  by 
plaintiff  Broker,  the  latter  was  not  entitled  at  common-law 
to  recover  advances  or  commissions,  when  the  ])urpose  of 
the  principal  was  to  gamble.  A  "  stock  "  clock  Avas  held  in 
State  vs.  Grimes,'^  to  be  a  gambling  device  Avithin  the  mean- 
ing of  the  charter  of  the  city  of  Minneapolis. 

Gambling  is  made  punishable  as  a  criminal  offence  by 
the  Code  of  Mississippi,  §  1122,  and  by  §  211-1,  contracts, 
judgments,  etc.,  on  any  wager,  are  declared  void.  It  was 
held  in  Campbell  vs.  Xational  Bank^  that  contracts  for  fu- 
ture delivery  are  void,  wdien  the  intent  of  the  parties  is 
merely  to  speculate  on  the  rise  and  fall  of  prices,  Avhen 
differences  only  are  to  be  settled,  and  there  is  to  be  no  de- 
livery, and  as  such  a  contract  was  one  of  wagering,  a  judg- 
ment on  a  note  given  by  a  principal  to  a  Broker  in  payment 
of  moneys  due  on  such  transactions,  and  by  the  Broker  en- 
dorsed to  the  plaintiff  bank,  could  not,  under  §  990  of 
the  Code  of  1880  (§  2114  of  the  Code  of  1882),  be  en- 
forced. And  in  Virden  vs.  Murphy^  it  was  held  that  a 
note  given  to  secure  money  loaned  by  plaintiff  to  defendant 

'4X.  D.  251.  3  74  T^iisg  526. 

2 -49  Minn.  443.  *  78  Miss.  .515. 


Wagers  imder  Existing  Laws.  529 

to  be  used  in  a  ''bucket  shop"  business  carried  on  by  de- 
fendant in  Philadelphia,  could  not  be  recovered,  the  business 
being  a  gambJing  one  under  §  211^  of  the  Code.  And  Luui 
vs.  Fauntleroy^  decided  that  in  a  suit  on  a  judgment  of 
another  State,  the  defendant  was  not  })recluded  from  setting 
up  the  gambling  nature  of  the  transactions  (viz.,  dealing  in 
futures),  upon  which  the  judgment  was  based,  and  which, 
as  they  took  place  in  the  State  of  Mississippi,  were  illegal 
by  the  statutes  of  that  State. 

The  Delaware  statute  against  gaming  (Laws  of  Delaware, 
ch.  454,  vol.  IL),  would  seem  to  be  directed  against  gaming 
tables,  etc.,  and  would  not  therefore  include  gambling  in 
"  futures." 

In  Virginia  by  the  Code  of  1887,  §  2836,  all  gaming  con- 
tracts are  declared  void.  In  Krake  vs.  Alexander^  it  was 
held  that  when  one  lends  money  which  is  used  by  the  bor- 
rower in  paying  off  a  judgment  obtained  against  hitn  on  a 
note  given  by  him  as  surety  in  respect  of  alleged  gambling 
transactions  in  pcjrk  and  grain  options,  and  of  which  trans- 
actions the  lender  liad  no  knowledge,  the  latter  is  not  de- 
barred from  recovering  the  money  lent  by  reason  of  the 
alleged  gambling  nature  of  the  transactions. 

In  North  Carolina,  gaming  or  betting  contracts  are  void. 
Code,  c.  22. 

Gaming  is  forbidden  by  the  Ci\il  Code  of  South  Caro- 
lina (§§  2305-Oy 

Under  the  Code  of  (ieorgia(§§  275.3,  now  3071),  all  wager- 
ing contracts  are  void,  and  evidences  of  debt  executcnl  upon 
a  gaming  consideration,  are  void  in  the  hands  of  any  per- 
son.     I'ndiT  this  s<*etion,  a  bank  cannot  i-ecovrroii  a  prom- 

'  HO  MiHH.  7r,7.  '  See  Itic-e  vh.  Gwi,  1  Strob.  (S.  C.) 

'  sr,  \n  20G.  82. 

34 


530  Stock-brokers  and  Stock  Exchanges. 

issory  note  given  in  a  transtiction  in  cotton  futures,  even 
though  a  honaJiJe  purchaser  for  value  before  maturity  with- 
out notice.'  A  principal  may  recover  from  a  telegra[)h 
company,  damages  occasioned  by  a  mistake  in  transmit- 
ting a  message  as  to  such  deals,'  but  this  doctrine  was 
subsequently  overruled,  and  it  was  held  that  a  telegraph 
company  was  not,  under  such  circumstances,  obliged  to 
respond  in  damages,^  nor  should  a  bank,  with  whom  col- 
lateral had  been  deposited,  under  an  agreement  to  honor 
a  draft  given  by  the  depositor  in  payment  of  mai'gins  in 
"  cotton"  futures,  be  compelled  to  observe  such  agreement.^ 

The  constitution  of  Louisiana  of  1S98  directs  the  legis- 
lature to  pass  laws  to  suppress  gambling.  Arts.  188  and 
2983  of  the  Eevised  Civil  Code  prohibit  gaming,  except 
games  of  skill.  An  optional  contract  to  purchase  flour  in 
St.  Louis,  which  expressed  that,  if  the  vendee  did  not  want 
the  flour,  differences  might  be  settled  at  the  prices  quoted 
by  the  St.  Louis  ^lerchants  Exchange,  was  held  to  be  a  gam- 
ing contract  under  the  statute.^ 

By  the  Rev.  Stats,  of  Illinois,  §  131,  wagering  contracts 
are  declared  void,  and  b\'  §  132  moneys  paid  to  the  "  win- 
ner" in  such  transactions  may  be  recovered.  It  was  held 
in  Pearce  vs.  Foote*  that  moneys  paid  to  a  Broker  in  grain 
option  contracts  may  by  recovered  from  the  Broker  as  a 
winner  under  §  132.' 

^Cunningham  vs.  Bank,  71  Ga.    Flower,   46  La.  Ann.   315;   15  So. 
405.  Rep.  16. 

*  Telegraph  Co.  vs.  Blanchard,  68       «  113  111.  228. 

Ga.  299.  '  This  decision   was   followed   in 

» Cothran  vs.  Telegraph  Co.,  83    Elder  vs.  Talcott,  43  111.  App.  439, 

Ga.  25;  9  S.  E.  Rep.  836.  in  a  like  contract,  notwithstanding 

*  Moss  vs.  Exchange  Bank,  30  contra  decisions  in  Hisigins  vs.  Mc- 
S.  E.  Rep.  267.  Crea,   116  U.  S.  671    (option  con- 

'  E.  O.  Stann^rd  Milling  Co.  vs.    tracts  in  pork  and  lard),  and  White 


TVagei's  uuder  Existing  L;i>vs.  531 

By  the  Code  of  Tennessee  (§  243S),  gaming  and  wagering 
contractsare  declared  void,  and  by  §  2440,  money  lost  tiiereon 
may  be  recovered.  Moneys  paid  in  wagering  contracts  in 
produce  "  futures,"  may  be  recovered  under  the  latter  sec- 
tion.' 

By  the  General  Statutes  of  Kentucky  (art.  1,  ch.  47,  §  1, 
now  ch.  58,  §  1955,  of  the  Kentucky  Statutes),  all  gaming 
or  wairering:  contracts  are  declared  void.  It  was  held  in 
Lyons  vs.  Ilodgen  "^  that  gambling  in  futures  was  within 
this  statute,  although  not  practised  at  its  enactment. 

By  the  Code  of  Alabama  of  1897,  §  21G3,  all  contracts 
founded  on  a  gambling  consideration  are  void.^ 

vs.  Barber,  12.3  U.  S.  392  (like  con-  liver  (Bryant  vs.  Telegraph  Co.,  17 
tracts  in  grain).  See  also  Kennedy  Fed.  Rep.  825),  and  a  telegraph 
vs.  Stout,  26  111.  App.  133;  Jamieson  company  may  not  be  enjoined  from 
vs.  Wallace,  167  111.  3S8;  Walker  vs.  refusing  to  supply  a  "bucket  shop" 
Johnson,  59  111.  App.  448;  X.  Y.  keeper  with  the  market  quotations. 
&c.  Stock  E.x.  vs.  Mellen,  27  id.  556,  Smith  vs.  Western  Union  Tele- 
to  same  effect.  Treble  the  amount  graph  Co.,  84  Ky.  664.  Wlien  it 
paid  may  be  recovered.  Kruse  vs.  clearly  appeared  that  stocks  were 
Kennett,  181  111.  199.  But  not  in  never  bought  or  sold,  differences 
the  Federal  court.  Sticktenoth  vs.  only  being  settled,  the  transactions 
Central  E.\.  of  Chicago,  99  Fed.  are  gambling  ones  within  this  sec- 
Rep.  1.  tion,  and  moneys  paid  to  a  company 

'  McGrew  vs.  City  Produce  Ex-  engaged  therein  may  be  recovered, 
change,  85  Tenn.  572.  .\nd  a  note  Boyd  vs.  Coates,  24  Ky.  L.  Rep. 
given  in  such  tran.sactions  is  void  7.30;  69  S.  W.  Rep.  1090. 
even  in  the  hands  of  a  bona  fide  '  It  wa.s  held  in  Ilawley  vs.  Rilib, 
holder  before  due.  Snoddy  vs.  69  Ala.  52,  that  dealing  in  "cot- 
Bank,  88  Tenn.  575.  ton"  futures,  without  intent  to  de- 

'  90   Ky.   280.     See   aI«o   to   the  liver,  wjls  gambling  within  Ihis  stat- 

Hame  effect.  Sawyer  vs.  Taggert,  77  ute,  and  that  the  amount  of  a  note 

Ky,  727;  Smith  vs.  W«»frtern  I'nion,  given  in  sueh  a  transaction  in  .\la- 

84  Ky.  661;  BeadhrM  vs.  .McIClrath,  liam.-i  <'ould  not  be  recovered  even 

85  Ky.  'I'M);  Fanners  M:ink  vs.  by  an  innocent  holder  for  vuluc,  but 
I'n.ser,   13  Ky.  I,.  R.  .565.  wlien  it  took  place  in  New  York,  it 

Tran.sactions  in  grain  "futures"  miirlit  be  recovered  at  conuiion-l.iw, 
arc  illegal  and  against  public  policy  in  the  absence  of  proof  of  a  New 
when  there  is  no  intention  to  <le-    York     statute     to     the     contrary. 


532  Stock-brokers  and  Stock  Exchanges. 

Money  lost  on  wagoi-s  may  be  recovered  in  Arkansas 
(Sandels  6c  Hill's  Dig.  of  Statutes,  §  3501),  and  judgments, 
etc.,  given  in  respect  tliereof  are  void  (§  3504). 

The  keeping  of  gaming  tables  is  forbidden  in  the  District 
of  Columbia  (Laws  of  January  31,  1883  ;  Code  of  1902, 
§864).' 

In  Colorado  gaming  contracts  are  declared  void  (]\rills' 
Anno.  Stats.  §  1344).  "When  one  gave  a  note  on  transac- 
tions alleged  in  his  defence  to  be  gambling  in  "  futures  "  in 
grain  on  the  Chicago  market,  but  which,  he  testified  on  the 
trial,  was  given  as  accommodation  paper,  a  verdict  against 
him  was  properly  directed  in  an  action  brought  by  a  bona 
fide  holder  of  the  note  for  value  without  notice.'^ 

Gaming  is  also  prohibited  in  Michigan  (Comp.  L.  §§  5929- 
38).     Section   5933  (formerly   §  1996  of  the  Comp.  L.  of 

When  no  proof  is  offered  that  there  '  A  note  given  in  transactions  in 
was  not  to  be  deUvery,  a  plea  by  a  "futures"  in  stocks  is  void,  even  as 
telegraph  company  that  a  "cotton  against  innocent  holders  without 
future"  was  a  gambling  transac-  notice.  Lully  vs.  Morgan,  21  D.  C. 
tion,  will  not  be  considered,  West-  88.  This  case  was  decided  under 
ern  Union  Tel.  Co.  vs.  Way,  83  -AJa.  the  English  statute  of  9  Anne, 
561 ;  Same  vs.  Chamblee,  25  So.  Rep.  c.  14,  §  1,  which  was  held  to  be  in 
2.32,  and  where  the  contract  was  to  force  in  the  district,  following 
l>e  performed  in  Germany,  it  cannot  Justh  vs.  Holliday,  2  Mack.  346, 
be  held  a  gambling  transaction  in  where  the  transactions  were  simi- 
the  absence  of  proof  of  the  law  of  lar,  but  it  has  been  recently  de- 
Germany.  Id.  See  also  Lee  vs.  cided  in  Wirt  vs.  Stubblefield,  17 
Boyd,  86  .Via.  283;  Peet  vs.  Hatch-  App.  D.  C.  283,  that  9  Anne, 
er,  112  Ala.  514  (as  to  cotton  c.  14,  §  1,  and  16  Car.  2,  ch.  7,  were 
futures).  In  Ferryman  vs.  Wolffe,  repealed  by  the  "Negotiable  In- 
93  Ala.  290;  9  So.  Rep.  148,  it  was  struments  Law"  (Act  of  Congress 
held  that  a  contract  for  the  sale  of  of  Januarj-  12,  1899),  so  far  as  in- 
stock  to  be  delivered  at  the  end  of  consistent  therewith,  and  that  a 
twelve  months,  with  an  option  to  note  in  gambling  stock  transac- 
the  seller  to  deliver  during  the  time,  tions  might  be  recovered  by  a  bona 
was  valid,  even  though  the  seller  fide  holder. 

had  not  the  stock  at  the  time,  as  it       '  Pendleton  vs.  Smissaert,  1  Col. 

appeared   he   intended   deliver}-.  App.  .508;  29  Pac.  Rep.  521. 


Wagers  under  Existiiii;  Ljiws.  533 

1S71),  voiding  notes  given  in  guniiny;  transactions,  was 
held  in  Shaw  vs.  (?lark  ^  not  to  apply  to  "  option  dealings  " 
in  wheat. 

In  Texas  cities  may  suppress  gambling  houses  and  fraud- 
ulent devices  (Sayle's  Texas  Civ.  Stats,  art.  431,  Act, 
March  15,  1875,  §  44).  And  gaming  is  prohibited  by  ch.  3 
of  the  Texas  Penal  Code. 

In  Xorth  Dakota  it  is  provided  that  losses  incurred  by 
betting  on  any  game  may  be  recovered  (Rev.  Stats,  of 
1895,  §  7235). 

In  Oregon  gambling  contracts  are  void  (Codes  and 
Statutes  of  Oregon  of  1902,  §  1945). 

The  keeping  of  any  gambling  apparatus  is  declared  un- 
lawful by  §  7852  of  the  South  Dakota  Statutes  of  1899. 
The  following  circumstances  wari-anteil  a  linding  that 
transactions  in  grain  and  other  commodities  were  mere 
gambling  on  the  market  prices :  The  fact  that  the  Brokers 
knew  that  the  customer  could  not  financially  make  the 
large  purchases  which  had  been  made ;  that  he  was  not 
in  the  business  of  dealing  in  such  commodities ;  that  not- 
withstanding formal  orders  to  buy  and  sell,  differences  only 
were  settled  ;  the  customer's  own  testimonj^  to  that  effect, 
and  similar  testimony  of  other  customers  of  plaintills.^' 

In  Arizona  gaming  by  unlicensed  persons  is  punishable 
by  fine  or  imprisonment  (Rev.  Stats,  of  1901,  ch.  IX). 

Gaming  is  also  made  a  ci-iminul  offence  by  the  Indian 
Territory  Statutes,  ch.  38;  by  the  Montana  Stats.  (Sander's 
edition),  ch.  9  ;  and  l)y  the  Comp.  Stats,  of  Nebraska  of 
1901,  :5  0877. 

Gambling  is  punishable  by  fine  or  imprisonmcnl  in  I'lor- 

•  VJ  .Mich.  384.  '  Wailc  vs.  KniiiU,  S(J  .\.  W.  K.p. 

015. 


534  Stoek-hrokers  jind  Stock  Exchanges. 

ida  (Eev.  Stats.  §2651,  as  amended  by  L.  1895,  p.  364); 
and  in  Idaho,  by  Penal  Code,  §  4846. 

In  Nevada  gambling,  except  by  licensed  persons,  is  for- 
bidden (Coinp.  Laws,  §  1263). 

In  Xew  Mexico  securities  given  for  gambling  debts  are 
void  (Comp.  Laws,  §  3202). 

Gambling  is  made  a  criminal  offence  by  the  Statutes  of 
Oklahoma,  ch.  56. 

In  Utah  gaming  is  a  misdemeanor  (Rev.  Stats,  of 
1898,  §  4261).  xVlso  in  Washington  (Codes  and  Stats,  of 
1897,  §  7260).  And  in  "Wyoming  all  gambling  contracts 
are  void  (Rev.  Stats,  of  1899,  §  2187). 

Gambling  is  also  prohibited  by  the  Penal  Code  of  Cali- 
fornia (§  350),  but  this  statute  apparently  would  not  include 
transactions  in  "  futures."  See  the  constitutional  provi- 
sion, supra.  The  same  observation  applies  to  the  Indian 
Territory  Stats.  (§1170-90).  See  supra  as  to  dealing  in 
''  futures."  And  the  Penal  Code  of  Montana,  §  600,  and 
§214  of  the  Criminal  Code  of  Nebraska  also  prohibit  gam- 
ing at  faro,  etc.,  and  do  not  cover  transactions  in  "  futures." 

In  Metropolitan  Bank  vs.  Jansen  ^  it  was  held  that  gam- 
bling in  grain  "  futures"  without  intent  to  deliver,  is  now 
void  in  the  United  States,  even  in  the  absence  of  a  prohib- 
itory statute,  and  a  bank  cannot  recover  the  amount  of  a 
note  given  in  such  transactions. 

In  conclusion  it  may  be  said  that  the  general  tendency 
of  the  courts  of  the  various  States  is  to  consider  all  gam- 
ing and  wagering  contracts  as  utterly  void  ;  to  look  upon 
them  as  insidious  enemies  to  our  modern  public  policy  and 
standard  of  morality,  fostering  unhealthy  desires  for  sud- 

»  47  C.  C.  A.  497. 


Wagers  under  Exist ini;  Laws.  535 

den  gain,  destroying  the  spirit  of  patient  labor,  and  pre- 
senting easy  avenues  to  demoralizing  habits  of  speculation 
— often  to  positive  crime.' 

TTe  shall  now  proceed  to  examine  the  cases  under  the 
statutes  and  principles  governing  "  wagers "  which  have 
arisen  out  of  transactions  in  securities  and  in  ''  petroleum," 
"cotton"-  and  "grain"' — operations  in  the  three  last- 
mentioned  kinds  of  merchandise  being  very  similar  to 
dealings  in  stocks — first  setting  forth  those  adjudications 
in  which  the  defence  of.  "wager"  has  been  sustained; 
secondly,  those  in  which  it  has  been  overruled  ;  and, 
thirdly,  deducing  the  results  of  the  cases  into  general  prin- 
ciples. 

In  the  outset,  the  general  proposition  upon  the  subject  of 
wagei-s  may  be  stated  as  follows :  If  the  agreement  between 
the  parties  is  a  bona  fide  contract  to  buy  and  sell,  the  law 
will  sustain  it ;  but  where  it  appears  from  the  evidence 
that  there  is  no  real  contract  of  sale,  and  that  the  whole 
arrangement  is  to  be  settled  by  the  payment  of  "  differ- 
ences," it  will  be  set  aside.^     This  statement  is  conceded  in 

'  See  Irwin  vs.  Williar,  110  U.  S.  was  illejial,  there  beinji  no  intention 
499,  and  ca.ses  cited.  to  deliver,  or  to  hand  over  wure- 

*  See  "Kay  on  Contractual  I.iini-  iiouse  receipts,  hut  merely  to  settle 
tations,"  p.  .'W  et  se<j.,  and  valuable  differences, 'daniajies  cannot  be  re- 
note  on  "Cotton  Futures"  bj-  Mr-  covered  from  a  telcRruph  company 
Alfred  B.  Shepperson,  contained  in  for  a  loss  on  sales  occasioned  by 
the  appendix  to  that  work,  as  also  delay  in  the  delivery  of  a  telegram. 
"I'rotfjst  of  the  New  York  Cotton  Mehhert  vs.  .Vmerican  U.  Tel  Co., 
KxchatiKe"  afrain.st  the  pa-s-sa^e  of  3  McCrary,  .')21 .  See  valualile  note 
bills  in  Congress  to  prevent  dealinR 'oil  option  sales  by  Mr  Francis 
in  option.s  and  fiilures.  Wharloti  appended  to  the  report  of 

'  .\nd   not  only   will  the  oritriiial    this  casn. 
contract  be  set  aside,  but  certain        It  was  held  in  Tiryant  vs.  Western 
clafweM  of  collateral  contracts  aris-    T^iion  Teleirraph  Co  ,  17  Fe<l    Hep. 
ing  therefrom.     Thus  when  a  con-    82.'),  that  a  de.-iler  in  erain  and  pork, 
tract  for  the  sale  of  rye  in  Chica;;o    who  kej)!   a   "bucket  shop"  could 


53G  Stock-brokers  and  Stock   KxcliaiiJ?es. 

all  of  the  cases  ;  and  whatever  inconsistency  or  want  of 
harmony  there  may  be  in  the  decisions  will  be  found  to 
arise  fi'om  the  ditferent  inter})retations  the  courts  have 
placed  upon  the  facts,  and  which  can  only  be  ascertained 
by  a  review  of  tlie  adjudications. 

(c.)    Wagevs  between  Principals. 

There  is  a  marked  distinction  in  those  cases  w^hich  have 
arisen  between  the  direct  parties  to  a  contract — as,  for  in- 
stance, a  vendor  and  a  vendee — and  those  in  which  a 
Broker,  actino;  for  a  principal,  has  entered  into  agreements 
with  third  persons  in  behalf  of  iiis  ])rincipal,  and  then 
seeks  indemnity  from  the  latter  for  money  laid  out,  etc., 
and  commissions  in  such  transactions.  In  the  former  class, 
if  the  intention  of  the  parties  is  not  to  deliver  or  receive 
property',  but  to  settle  by  the  mere  payment  of  differences, 
the  contract  is  a  wager.  But  a  Ih'okei-  may  be  ignorant  of 
the  unlawful  intention  of  his  principals,  and  may  then  re- 
cover for  money  paid  out,  commissions,  etc.,  although  the 
principals  would  he  unable  to  enforce  the  contract  as  be- 
tween themselves.^ 

This  important  distinction  will  be  found  to  be  supported 
in  all  of  the  well-considered  cases.  Under  this  head,  there- 
fore, we  shall  set  forth  the  cases  arising  hctweer^  principals 
in  stock  transactions,  remarking  in  the  beginning  that  the 
cases  seem  to  be  few^  in  which  the  defence  of  wager  has 
been  sustained. 

not  compel  a  telegraph  company  to   no    statute    in    Kentucky    making 
furnish  him  with   "ticker"  quota-    such  .u:amI)Un,<i  criminal, 
tions  from  the  Chicago   Board   of       '  Warren  \-.s.  Hewitt,  45  Ga.  201, 
Trade,  although  he  was  a  member   and    cases    cited    under  subd.  {d), 
of  that  board,  and  although  there  is    p.  551. 


Wagei*s  between  Principals.  537 

The  first  case  ^vllich  arose  under  the  act  of  Victoria  was 
that  of  Grizewood  vs.  Bhine.^  The  pUiintiff,  who  was  a 
Stock-jobber  in  London,  brought  an  action  of  assumpsit 
against  the  defendant,  who  had,  through  his  Broker,  con- 
tracted to  sell  certain  shares  of  stock,  which  he  did  not  own, 
to  tlie  plaintiff,  deliverable  at  a  future  tiuie.  The  market 
in  the  meantime  having  advanced,  the  defendant  could  not 
deliver  the  stocks  at  the  price  the  plaintiff  had  bargained  to 
pay  for  them,  whereupon  it  was  agreed  between  the  par- 
ties that,  instead  of  delivering  the  stocks,  the  defendant 
should  pay  the  differences  between  the  contract  and  the 
market  price  on  the  day  they  were  to  be  delivered.  The 
action  was  upon  this  last  agreement  to  recover-  the  "  differ- 
ences." The  defendant  interposed  the  defence  that  the 
contract  was  illegal,  as  a  wager  on  the  price  of  the  shares, 
setting  forth  in  his  plea  the  very  language  of  the  act.  The 
court,  upon  special  demurrer,  gave  judgment  for  the  plain- 
tiff, holding  that  the  plea  was  bad,  and  that  the  defendant 
was  bound  to  show  the  circumstances  which  made  the  con- 
tract set  forth  in  the  declaration  a  gaming  one.  The  case 
subsequently  came  to  trial  on  the  issues  of  fact.  The  court 
left  it  to  the  jury  to  say  what  was  the  intention  of  the  j)ar- 
ties  at  the  time  of  making  the  contract,  whetiier  either 
party  really  meant  to  purchase  or  sell  the  shares  in  (pies- 
tion  ;  that,  if  they  did  not,  the  conti'act  was  a  gambling 
transaction  and  void.  Tiui  jury  found  for  thir  dt'l'mdant. 
Upon  app(;al,  this  ruling  was  sustained,  and  the  rule  thus 
estal)lish('d  of  h'aving  the  intention  of  tiie  ))arties  to  be  de- 
termined by  the  jury  lias,  it  seems,  been  substantially  ad- 


'20   EiiR.    L.   <fe  Eq.  '2'M);   for  (Icclaralioii    in   the  ca.so,   ««•(!  S  id.  Ilf); 

<•  11  r  n.  r/.m. 


538  Stock-hrokors  and  Stock  Exchanges. 

hered  to,  except  by  the  courts  of  Pennsylvania,  to  which 
alhision  will  liereafter  be  made.^ 

In  "Whitlark  vs.  Davis  ^  it  waslicld  that  an  outside  Broker 
(who  acted  as  a  principal)  was  entitled  to  recover  differ- 
ences when  he  was  ready  to  deliver  the  securities  at  any 
time  it"  called  upon  l)y  defendant  to  do  so,  and  that  the  con- 
tract was  a  real  one,  and  not  witliin  the  statute. 

In  The  Universal  Stock  Exchange  vs.  Strachari'Mt  was 
decided  however  by  the  House  of  Lords  that  when  the  in- 
tention was  that  "  differences "  only  should  be  accounted 
for,  and  that  no  stocks  or  shares  should  be  delivered,  an 
option  to  demand  delivery  or  acceptance  thereof  did  not 
take  the  case  out  of  the  statute,  but  securities  deposited  by 
one  party  with  the  other  to  secure  the  payment  of  "  differ- 
ences" might  be  recovered,  as  they  were  not  deposited  "to 
abide  the  event,''  but  it  was  held  in  Strachan  vs.  Universal 
Stock  Exchange,  Ld.  (No.  2),'*  that  if  money  so  deposited 
had  been  ajipropriated  by  the  depositee  as  against  losses, 
to  the  knowledge  of  the  depositor,  the  latter  could  not 
recover. 

The  decision  of  the  House  of  Lords  in  Universal  Stock 
Exchange  vs.  Strachan,  supra^  as  to  the  effect  of  an  option, 
was  followed  in  Re  Gieve''  and  it  was  held  in  Ex  parte 
Waud*  that  as  such  a  contract  was  illegal,  a  promise  by 
a  Broker,  acting  as  a  principal,  to  deliver  stock  in  payment 
of  differences,  was  without  consideration,  and  damages  could 
not  be  recovered  for  the  non-delivery. 

In  the  United  States,  beginning  with  the  State  of  New 

'  See  also  s.  c.  11  C.  B.  526;  Mar-  ^  (isgo)  App.  Cas.  166. 

shaU  vs.  Thurston,  3  Lea  (Tenn.),  ^  (1895)  2  Q.  B.  D.  697. 

743.  ^  (1S99)  1  Q.  B.  794. 

2 10  Times  L.  R.  425.  »  (1898)  2  Q.  B.  383. 


Wagei*s  between  Principals.  539 

York,  we  find  a  case^  somewhat  analogous  to  Grize^vood  vs. 
Blane,  where  a  deniuiTcr  was  interposed  to  the  complaint, 
but  with  a  different  result  from  that  reached  in  the  English 
case.  In  that  case  the  Superior  Court  of  New  York  inter- 
preted the  statute  upon  the  subject  of  wagers,  and  held  that 
an  answer  to  a  complaint  for  damages  for  non-deliv^ery  of 
certain  i)ork,  which  set  up  "that  it  was  not  the  intention 
of  the  defendant  to  make  any  actual  sale  or  delivery  of 
pork  to  the  phiintitf,  nor  was  it  the  intention  of  the  plain- 
tiff actually  to  buy  or  receive  an}"-  pork  from  the  defendant ; 
that  it  was  the  mutual  design  of  both  the  plaintiff  and  de- 
fendant, at  the  making  of  the  said  supposed  contracts,  that 
the  same  should  not  be  specifically  performed  in  whole  or  in 
part ;  but,  on  the  contrary,  that  at  the  maturity  of  said  sup- 
posed contracts,  the  differences  between  the  then  market 
value  of  the  pork  therein  mentioned  and  the  price  of  the  same 
fixed  in  said  supposed  contracts  should  be  paid  by  the  one 
party  to  the  other,  as  performance  or  satisfaction  of  said  sup- 
]X)sed  contracts,''  was  good.  The  court  distinguished  the 
case  from  Grizewood  vs.  Blane  on  the  ground  that  the  lan- 
guage of  the  New  York  statute  was  broader  than  the  English 
act,  l)Ut  fully  concurred  in  the  result  of  that  case.  There  are 
other  cases  where  the  defence  of  wager  has  been  sustained, 
especially  in  the  State  of  Pennsylvania,  but  they  more 
appropriately  belong  to  the  other  subdivisions  of  this  chap- 
ter.^ 

Bcirinninf;  with  Enjrland,  we  find  that  the  decided  tend- 
ency  of  the  courts  of  that  country  has  been  to  reject  the 
defence  of  wager  where  it  has  been  iiilrochiced  to  defeat  a 


'  Ca-war  i   vb     Tlinirmn.   1    Posw         '  Sr-p  post,  p.  r>!y(S. 
207;  afT'c  11  How  (S   Y  )  Pr   HI. 


540  Stock-brokers  and  Stock   Exchaiii?os. 

recovery  in  actions  gi'()\vin<,^  <iiit  of  Stock  Exchange  trans- 
actions. 

To  ilhistratc  this  tendency,  it  is  necessary  to  set  forth 
but  a  few  of  the  leading;  modern  cases.  In  the  foUowin": 
cases,  the  C(jnrt,  under  a  defence  of  wager,  examined  (U-al- 
ings  of  members  of  the  London  Stock  Exchange  inte?'  se, 
and  pronounced  them  invulnerable  under  the  statute  of  Vic- 
toria before  cited.  A,  B,  and  C  were  members  of  the  Stock 
Exchange,  according  to  the  rules  and  customs  of  wliich 
there  are  two  (hiys  appointed  in  a  month  for  settling  trans- 
actions relating  to  foreign  securities ;  and,  in  case  of  a  h)an 
upon  or  a  sale  of  such  securities,  the  lender  or  seller  has  the 
right,  in  case  of  non-payment  of  the  loan  or  non-completion 
of  the  purchase,  either  to  sell  or  take  them  at  their  market 
value — tlie  deficiency,  if  any,  in  the  price  being  paid  to  the 
borrower  or  purchaser,  and  the  surplus,  if  any,  beyond  the 
loan  or  purchase-money  being  paid  by  liim  to  the  lender  or 
seller,  who,  if  the  borrower  or  purchaser  is  declared  a  de- 
faulter, is  bound  to  take  the  securities  at  a  price  fixed  by 
the  oflBcial  assignees  of  the  association.  According  to  these 
rules  and  customs,  A  lent  to  C  money  on  tlie  security  of 
foreign  railway  shares,  which  were  of  the  full  value  of  the 
loan,  and  on  each  succeeding  settling-day  the  amount  of  de- 
preciation or  increase  in  the  value  of  the  shares  was  paid  by  C 
or  A  respectively  to  the  other,  till  C  Avas  declared  a  defaulter, 
wlicn  A  took  the  shares  at  the  price  fixed  by  the  official 
assignee.  C  was  afterwards  adjudged  a  Ijankrupt,  and  A 
tendered  a  ])roof  for  the  balance  due  him  in  respect  of  the 
transaction,  after  deducting  the  price  at  which  he  had  taken 
the  shares. 

According  to  the  same  rules  and  customs,  B  agreed  with 
C  to  sell  iiim  one  hundred  foreign  railway  shares  for  a  cer- 


TVagers  between  Principals.  541 

tain  sum.  The  transaction  was  not  completed,  but  on  each 
succeeding  settling-day  the  differences  were  paiil  by  B  or 
C,  as  in  A's  case  ;  and,  on  C  being  declared  a  defaulter,  B 
likewise  took  the  shares  at  their  value,  and,  on  C's  bank- 
ruptcy, tendered  a  proof  for  the  balance  due  to  hiin  in  respect 
of  the  said  shares.  The  proofs  were  both  rejected  on  the 
ground  that  the  transactions  were  illegal  as  wagers.  On  ap- 
peal, the  Court  of  Appeals  reversed  this  ruling,  and  held  that 
the  transactions  were  regular  and  legal.  The  court,  in  the 
opinion,  laid  stress  upon  the  facts  proved  in  each  case — that 
the  transactions  had  been  conducted  in  accordance  with 
the  rules  of  the  Stock  Exchange  ;  that  there  was  an  actual 
advance  of  money  and  a  deposit  of  shares  in  the  one  case, 
and  that  in  the  other  case  the  dividends  on  the  shares 
alleged  to  have  been  sold  were  accounted  for  to  the  bank- 
rupt.^ 

In  the  case  of  Shaw  vs.  Caledonian  Railway  Co.^  the 
court  held  that  transactions  between  a  principal  and  an  out- 
side stock  dealer  were  not  gambling  ones,  although  plaintiff, 
who  was  the  only  witness  examined,  swore  that  he  had  no 
contract  except  for  the  j)ayment  of  differences,  the  court 
holding  that  if  either  one,  or  both,  of  the  parties,  could  de- 
mand or  give  <lelivery  of  the  stocks,  the  transaction  was  a 
real  one,  and  not  for  the  payment  of  differences. 

The  princij)le  of  this  decision  was  followed  in  Lowenfeld 
vs.  Ilowat,'  tJK;  court  holding  that  where  tlieic  was  a  ch-ar 
contract  disclosed  by  the  bought  and  sold  notes,  the  trans- 
actions were;  not  gambling  ones,  unless  it  could  be  shown  by 

'  In  rp  M()ri.'aii,  K\  parte  I'liillipH        '  (1«{K))    17  Court  Ses.  Vhh.   ( Itli 

and  Ex  [lartc  Marnliain.  (i  .Iiir.  Oi.h.)  S«»rieH)  -lOO. 

V27.i;  !»  W,  U    1.11 ;  2  1)<'  (i.  V.  *  J.        »  19  Court  S<-h.  Ciw.  (1th  SerieM) 

(Vi\;  -M  L  J.  Hunk.  1 ;  3  L.  T.  (n.  ».)  128. 
r,UJ. 


542  Stock-brokers  and  Stock  Exchanges. 

some  other  written  or  (jral  contract,  that  the  original  con- 
tract was  not  intended  to  be  a  real  one,  and  the  evidence 
did  not  disclose  such  a  subsidiary  agreement. 

To  the  same  effect  is  Universal  Stock  Exchange  vs. 
Stevens,^  where  it  was  held  that  plaintiff  stock-jobbers  were 
entitled  to  recover  the  balance  due  them,  as,  although  the 
parties  contemplated  that  actual  deliveries  of  stock  should 
not  take  place  except  under  special  circumstances,  the  con- 
tracts were  in  fact  sales  and  purchases  of  stock,  and  not 
wagering,  although  the  parties  thought  that  the  contracts 
would  in  the  long  run  result  in  the  mere  payment  of 
differences. 

In  the  State  of  New  York  the  leading  case  upon  the  sub- 
ject of  wagers  is  Bigclow  vs.  Benedict,^  where  the  instru- 
ment sued  on  was  as  follows  : 

"  Attica,  Jan.  23,  1865. 

"  Know  all  men  by  these  presents,  that  I,  C.  B.  Benedict,  for  and  in 
consideration  of  the  sum  of  $2.")0,  do  agree  to  receive  from  M.  C.  Bige- 
low,  at  any  time  within  six  months  from  date  he  may  choose  to  de- 
liver the  same,  S2,500  in  gold  coin  of  the  United  States,  for  which  I 
agree  to  pay  to  the  said  B.  95  per  cent,  premium  on  the  dollar,  or  at 
the  rate  of  ?195  in  good  current  funds  for  each  and  every  $100  of  coin. 
The  said  B.  docs  not  contract  to  deliver  the  coin,  but  pays  the  $250  for 
the  privilege  of  delivering  or  not,  at  his  option. 

Signed,  "  C.  B.  B." 

The  plaintiff  Bigelow  tendered  the  gold  before  the  time 
mentioned  in  the  contract  had  expired,  brought  suit  and  re- 
covered judgment  for  the  difference  between  the  market 
value  in  current  funds  of  gold  at  the  time  of  tender  and 
the  price  specified  in  the  contract,  with  interest.  The  validity 
of  the  contract  was  assailed  on  the  ground  that  it  was  a 

'  66  L.  T.  R.  612.  '  70  N.  Y.  202. 


^Vagei-s  between  Priucipiils.  543 

wager.  The  appellate  court  held  that  there  was  nothing 
illegal  on  the  face  of  the  contract ;  and  as  no  evidence  had 
been  given  showing  former  dealings  between  the  parties,  or 
any  vicious  intent,  tlie  judgment  below  was  sustained.  The 
court  was  of  opinion  that  the  circumstances  relied  on  to 
show  that  the  contract  was  a  wager — viz.,  first,  that  it  was 
a  contract  for  the  sale  of  gold  ;  and,  second,  that  it  was 
optional  on  the  part  of  the  seller — did  not  authorize  the  in- 
ference that  it  was  illegal.  While  the  court  admitted  that, 
if  the  contract  in  question  was  a  mere  device  to  evade  the 
statute,  it  would  l)e  illegal,  the  question  was,  did  the  con- 
tract on  its  face  disclose  an  illegal  transaction  ?  The  court 
concluded  that  it  did  not,  and  that  the  defence  of  illegality 
was  not  established,  the  burden  of  proof  resting  upon  the 
defendant  to  establish  the  same.' 

15ut  in  a  later  case  in  the  Supreme  Court  of  "Wisconsin,'^ 
it  was  decided  that  to  "  uphold  a  contract  in  writing  for  the 
sale  and  delivery  of  grain  at  a  future  day  for  a  price  certain, 
it  must  affirmatively  and  satisfactorily  appear  that  it  was 
made  with  an  actual  view  to  the  delivery  and  receipt  of  the 
grain,  and  not  as  a  cover  for  a  gambling  transaction."  Tiie 
law  upon  tills  subject  is  clearly  and  well  stated  in  Kirkpal- 

'  See  al.sr>  IV.ihody  vs.  Speyers,  .56        '  Barnard   vs.   Rarkliavis,  .'i'i  Wis. 

N.  Y.  2'.V);  Caincron  v.s.  Durkheim,  593.      ThLs   decision    wa.s   followed 

.5.5  id.  425;  Cook  vs.  Davis,  53  id.  in  Lowry  vs.  Dillman,  59  Wis.  197, 

318;  43  id.  209;  Treliilcock  vs.  Wil-  where   it  was  held  that  the  qup.s- 

son,  12  Wall.  (U.  S.)  (i87;  Mcllvaine  tion  whether  a  note   piven  by  the 

VH.  Egerton,  2  Iloht.   C\.  V.)  422;  customer  to  the   commission   mcr- 

Stunton  vs.  Small,  3  Sandf.  2.30;  Ty-  chant  wa.s  for  los.ses  on   "future" 

ler  vs.  Harrows,  0  Kol»t.  104.     The  dealings  in  l)arl('y  without  intent  to 

fact  that  only  a  part  of  the  price;  of  deliver,   wils  for  the  jury.      Where 

Rold   (i.  e,  a  margin)   is  furnislu^fl,  one  of  the  parties  intends  delivery 

doe«    not     make    the    eontraet    il-  it     is     not     ^lamhliiif^.       Wall     Vfs. 

le^al.       WheelcHS  vs.   Fi»k,   2.S   La.  Schneider,   r,[i   Wia.  352. 
Ann.   732. 


544  Stock-brokers  and  Stock  Exchanges. 

rick  vs.  Ronsall,'  and  the  viinvs  there  expressed  accord  with 
coininoii-seiise  and  the  ordinar}'  course  of  business  trans- 
actions. As  was  renuirked  by  Agnew,  J.,  in  this  case : 
"  We  must  not  confound  gambling,  whether  it  be  in  corpora- 
tion stock  or  merchandise,  with  what  is  commonly  called 
speculation.  ]\rerchants  speculate  upon  the  future  prices  of 
that  in  which  they  deal,  and  buy  and  sell  accordingly.  In 
other  words,  they  think  of  and  weigh — that  is,  speculate  upon 
— the  probabilities  of  the  coming  market,  and  act  ui)on  this 
lookout  into  the  future  in  their  business  transactions  ;  and 
in  this  they  often  exhibit  high  mental  grasp  and  great 
knowledge  of  business  and  of  the  affairs  of  the  world. 
Their  speculations  display  talent  and  forecast,  but  they  act 
U})on  their  conclusions,  and  buy  or  sell  in  a  Jjona  Jide  way." 
And  the  law  docs  not  condemn  such  transactions,  providing 
the  intention  really  is  that  the  commodity  shall  be  actually 
delivered  and  received  when  the  time  for  delivery  arrives. 
Consequently  no  h^gal  objection  exists  to  such  time  contracts, 
which  are  to  be  performed  in  the  future  l)y  the  actual  de- 
livery of  the  property  by  the  vendor,  and  the  receipt  and 
payment  of  the  price  l)y  the  vendee,  if  the  contract  is  in 
writing ;  and  it  is  also  true  that  a  contract  for  the  sale  of 
ffoods  to  be  delivered  at  a  future  day  is  not  invalidated  bv 
the  circumstance  that  at  the  time  the  contract  was  made  the 
vendor  has  neither  the  goods  in  his  possession  nor  has 
entered  into  an  agreement  to  buy  them.  A  party  may  go 
into  the  market  and  buy  the  gotxls  which  he  has  agreed  to 
sell  and  deliver.^ 

It  has  also  been  decided  tiiat  a  purchase  of  grain  at  a  cer- 

•  72    Pa.    St.    155;    Runi.sey    vs.        ^  Barnard  vs.  Backhaus,  supra. 
Bern,',    65    Me.    570;    Gregory    vs. 
Wendell,  39  Mich.  337. 


lVas:ors  between  Priiieipals.  545 

tain  price  per  bushel,  made  in  good  faith,  to  be  delivered  in 
the  next  month,  giving  the  seller  until  the  last  day  of  the 
month,  at  his  option,  in  which  to  deliver,  is  not  an  illegal 
or  gambling  contract,  and  that  the  purchaser  would  be  en- 
titled to  its  benefit,  no  matter  what  may  have  been  the 
secret  intention  of  the  seller.' 

An  interesting  question  arising  on  contracts  for  the  sale 
of  grain,  settled  by  payment  of  ditferences,  was  })asse(l  on 
by  Judge  Gresham  in  the  United  States  Circuit  Court  for 
Indiana.  It  had  already  been  well  settled  in  previous  cases 
that  a  contract,  which  on  its  face  does  not  show  an  inten- 
tion not  to  deliver,  is  presumed  to  have  been  an  actual  ]iur- 
chase  or  sale,  and,  though  optional,  is  valid  until  the  party 
impeaching  the  contract  shows  an  illegal  intent.  The  ques- 
ti<jn  as  to  what  evidence  will  show  the  intent,  and  particu- 
larlv  whether  the  fact  that  the  contract  was  actually  set- 
tled by  adjustment  of  differences,  or  that  there  was  a  usage 
to  do  so,  necessarily  shows  it  to  have  been  illegal,  or  sulfices 
to  raise  a  legal  presumption  that  the  intent  to  make  such  a 
settlement  existed  in  the  inception  of  the  contract,  arose  in 
the  case  before  Judge  Greshani,  and  he  ruled  that  such  a 
usai'-e  did  not  necessarilv  make  the  contract  void. 

The  testimony  tended  to  sIkmv  that  a  general  custom  ob- 
tained among  grain  commission-merchants  in  Baltimore  to 
the  following  effect :  When  one  commission-merchant,  ui)on 
the  order  of  a  Client,  sells  to  another  commission  merchant 
a  quantity  of  grain  for  future  delivery,  and  where  it  occurs 
that  at  some  other  time  before  the  maturity  of  the  contract 
the  same  commission-merchant  receives  an  order  from  an- 
other ('Ii«;nt   to   jHii-chase  the  same  or  a   larL''<'r  (plant ity  of 

»  Pixley  VH.  Boynfoii,  7!>  111.  351. 

85 


54G  Stoi'k-brokers  and  Stock  Exchanges. 

tbo  same  kinil  of  grain,  for  the  same  future  delivery,  and 
he  executes  this  second  order  by  making  the  purchase  from 
the  same  commission-merchant  to  whom  he  had  made  the 
sale  in  tJie  other  case — tlicn  in  such  case  the  two  commission- 
merchants  meet  together  ;ind  exchange  or  cancel  the  con- 
tracts as  between  themselves,  adjusting  the  difference  in 
the  prices  between  the  two  contracts,  and  restoring  any 
margins  that  may  have  been  put  up  ;  and  from  that  time 
forth  the  first  commission-merchant  holds,  for  the  benefit 
of  the  Client  for  whom  he  sold,  the  order  or  contract  of 
the  purchaser  for  whom  he  bought,  so  that  the  wheat  of 
the  selling  Client  may,  Avhen  delivered,  be  turned  in  on  the 
order  or  contract  of  the  purchasing  Client,  and  the  com- 
mission-merchant is  held  responsible  as  guaranty  to  his  Cli- 
ent. The  evidence  also  tended  to  show  a  custom  obtaining 
among  commission-merchants  in  Baltimore  to  the  further 
effect  that  though  the  second  transaction  may  have  been 
had  with  a  different  commission-merchant  from  the  one 
with  Avhom  the  first  transaction  was  had,- yet  where  it  can 
be  found  that  a  series  of  contracts  are  in  existence  for  the 
sale  of  like  grain  for  like  delivery,  so  that  the  seller  owes 
the  wheat  to  the  buyer  to  whom  he  sold,  and  he  to  another 
who  ow^es  like  wheat  for  like  delivery  to  the  first  commission- 
merchant,  then  in  such  case  they  settle  by  what  they  call 
"  a  ring  " — that  is,  they  all  reciprocally  surrender  or  cancel 
their  contracts,  adjust  the  price  differences  between  them- 
selves, and  surrender  all  margins  that  had  been  put  up ; 
that  in  all  such  cases  the  commission-merchant  substitutes 
the  contract  of  another  Client  in  place  of  that  with  the 
commission-merchant  whose  contract  has  been  cancelled 
or  surrendered,  and  that  he  guarantees  to  his  Client  the 
performance  of  the  contract  originally  made  on  his  behalf. 


Wagers  between  Principals.  547 

The  judge  instructed  the  jury  that  these  customs  were 
founded  in  commercial  convenience  ;  that  they  are  not  in 
contravention  of  the  law  ;  and  that  they  were  vidid.  He 
also  charofed  them  that  the  burden  of  showing:  that  the 
parties  were  carrying  on  a  wagering  business,  and  were 
not  engaged  i:i  legitimate  trade  or  speculation,  rests  upon 
the  defendant.  On  their  face  these  transactions  are  legal, 
and  the  law  does  not,  in  the  absence  of  prijof,  presume  that 
parties  are  gambling.  A  transaction  which  on  its  face  is 
legitimate  cannot  be  held  void  as  a  wagering  contract  by 
showing  that  one  party  only  so  understood  and  meant  it  to 
be.  The  proof  must  go  further,  and  show  that  this  misun- 
derstanding was  mutual — that  both  parties  so  understood 
the  transaction.' 

In  Pennsylvania  the  following  contract  was  sustained : 
"November  10,  IS  TO.  In  consideration  of  $1,000  we  agree 
to  deliver  B.,  should  he  call  for  it  during  the  first  six  months 


'  Williar  vs.  Inviii,  12  Chic.  Leg.  loss  on  sale.     Fisher  vs.  Fisher,  S 

News,  241,  aff'd  as  to  the  definition  Ind.  App.  665. 

of  a  wagering  contract,  110  U.  S.  If  a  note  is  given  by  grain  Bro- 

507.     See   also,  in  this  connection,  kers  for  profits  made  by  their  cus- 

Gregory  vs.  Wendell,  40  Mich.   432.  tomer  in  gambling  transactions  in 

If   two   persons   have   a   deal    in  futures,  the  latter  cannot  recover  on 

grain  "futures"  with  the  keeper  of  the  plea  that  the  relation  of  princi- 

a  "bucket  .sliop,"  and  one  advances  pal    and    agent    exists.     Nave    vs. 

half  the  sum  required  for  margin.  Wilson,  12  Ind.  .\pp.  3H. 

for  which  he  takes  the  borrower's  Merc  knowledge   on   the  part  of 

note,  he  cannot  recover  the  amount  one  loaning  money    that  the  l)or- 

of  such  note.     Davis  vs.  Davis,  119  rower  intends  to  gamble  in  grain 

Ind.  511.  futures  in  Chicago,  when  the  lender 

If,    however,    deliven,-     was    in-  is  not  a  party  to  .such  transactions, 

tended,  and  warehou.se  receipts  are  will  not  defeat  a  recovery,  Jack.son 

actually  delivere<l  by  the  lirokers  to  vs     Mauk,    125   Ind.   :M7.   but  it   is 

the  principal.^,  one  of  the  latter  may  otherwise  if  he  is  iiitereHtfHJ  in  such 

recover  the  amount  of  a  note  given  transact  ions      Plank    vs.    Jackson, 

by  the  other,  being  his  moiety  of  a  \'2H  Ind.  424. 


'A^  Stock-brokers  and  Stock  Exchanges. 

of  1871,  5,(»00  barrels  of  oil.  If  said  oil  is  called  for,  this 
call  becomes  a  contract ;  ten  days'  notice  shall  be  given  ; 
and  B.  agrees  to  receive  and  pay  for  the  same,  cash  on  de- 
livery, at  1(1^  cents  a  gallon."  This  contract  was  attacked 
as  a  gambling  transaction ;  but  the  court,  upon  reasoning 
similar  to  that  used  by  the  courts  of  New  Yot-k  in  Bigelow 
vs.  Benedict,'  held  that  this  did  not  appear  from  the  face  of 
the  instrument ;  but  that  it  was  for  the  jury  to  say  whether, 
in  view  of  all  the  facts,  it  was  a  mere  scheme  to  gamble 
upon  the  chance  of  prices.'^  In  fine,  in  the  language  of  Lord 
Coke  :  "  It  is  a  general  rule  that  Avhensoever  the  words  of  a 
deed,  or  of  the  parties  without  deed,  may  leave  a  double 
intendment,  and  the  one  standeth  with  law  and  right,  and 

'  Ante,  p.  542.  When  the  parties  are  sui  juris, 
-  Kirkpatrick  vs.  Bonsall,  72  Pa.  money  given  to  invest  in  stock 
St.  155.  jiambling;  is  not  recoverable.  lb. 
A  note  given  by  one  partner  to  When  the  transactions  in  stocks 
another  in  deaUngs  in  oil,  on  margins,  are  large,  but  the  amount  of  money 
where  no  delivery  was  had,  is  not  advanced,  small,  the  inference  is 
recoverable.  Hall  vs.  Law,  1  Pa.  that  the  dealings  were  upon  a  wager, 
C.  C.  II.  477;  McGrew  vs.  Mc-  and  one  principal  cannot  recover 
Gregor,  4  Penny.  100.  If  one  of  from  another,  even  though  there 
two  principals  should  die,  a  claim  was  an  account  started,  and  a  prom- 
by  the  other  arising  out  of  a  stock  ise  to  pay.  Patterson's  Appeal,  13 
gambling  transaction  is  not  en-  W.  X.  C.  154.  A  judgment  given 
forceable  against  the  former's  estate,  by  one  principal  to  another,  to  cover 
Thompson's  Est.,  11  W.  X.  C.  371.  his  share  of  the  losses  in  dealing  in 
When,  however,  one  actually  buys,  stocks  on  margin,  is  not  recover- 
through  a  Broker,  stock  for  another,  able.  Collings  vs.  Xevin,  .30  P.  L. 
at  the  latter's  request,  and  holds  it  J.  238. 

till  the  purchase  money  is  paid  by  See  Waugh  vs.  Beck,  114  Pa.  St. 

his  co-principal,  he  can  recover  from  422;  6  .\tl.  Rep.  923  (one  who  lends 

the  latter  the  loss  occasioned  by  a  money  and  takes  a  note  therefor  to 

sale  of  the  stock  when  it  is  not  taken  further  a  wagering  transaction  may 

up    by    the    borrower.     Potts    vs.  recover,     even     although     he    has 

Dunlop,   110  Pa.  St.   177.     If  the  knowledge  that  it  is  to  be  so  used, 

stocks  are  delivered,   the  transac-  provided  he  does  not  confederate 

tion  is  not  a  gambling  one.     Stew-  \\nth  the  borrower  as  to  the  use  of 

art   vs.   Pamell,    147  Pa.  St.  323.  the  money  advanced). 


M'agei's  between  Principals.  549 

the  other  is  wrongful  and  against  law,  the  intendnicMit  that 
standeth  with  the  law  shall  be  taken.'-  ^ 

In  Wakefield  vs.  Farnuni  ^  it  was  held  that  there  was 
evidence  that  defendants.  Brokers  in  Boston,  dealt  with 
their  customer  residing  in  Massachusetts  as  principal,  in 
wheat  transactions  which  were  held  by  th(5  couit  l)elow  to 
be  gambling  ones  by  the  common-law  of  Massachusetts,  al- 
though they  carried  out  their  contracts  through  Chicago 
Brokers,  and  therefore  the  contract  was  made  in  Boston  be- 
tween the  customer  and  the  Boston  Brokers  and  not  between 
the  Chicago  Brokers  and  the  unknow  n  ])ersons  with  whom 
they  dealt,  and  it  was  not  necessary  to  show  that  the  con- 
tract was  a  wagering  one  in  Chicago.  In  this  case  the  Bos- 
ton  Brokers  had  furnished  an  account  showing  a  balance 
due  their  Client,  and  it  was  held  that  the  latter  could  not 
recover  such  balance.  And  in  Noithi'uj)  vs.  Buffington  ^  it 
was  held  that  a  customer  could  n<jt  recover  margins  and 
profits  on  stock  transactions  from  Boston  Stock-brokers, 
although  the  latter  were  doing  a  commission  business  for 
Xew  York  Brokers,  through  whom  the  ti'ansactions  were 
effecte<l,  the  contracts  having  beiMi  found  to  l)e  gambling 
ones.  AVhen  one  employs  a  Stock-broker  to  sell  shares,  and 
the  shares  are  sold  by  the  Broker,  the  contract  is  nota  wag- 
erinj:  one  unless  both  seller  mid  buNcr  understood  that 
there  was  to  b<!  no  delivery  of  the  shares.^ 

A  contra(;t  f<jr  the  delivery  of  cotton,  not  then  in  exist- 
ence, to  be  received  in  pavment  of  fertiliz(M-s  and  sup- 
plies, is  illegal  in   (Georgia.'     One  who  deals  in  cotton  "  fu- 

'Co.   Lit.    12,    IHS;  but  compiiro  '171  Miwh.  4ftS. 

Miitter  of  Chundler,    13  .\ni.    Luw  *  H:inu*s    vs.    Smith,     I.V.I    .Milkh. 

HcK    ^n.  8)  310.  ."ill 

'  170  Mu.s«.  '\'2'2.  '  Innum  vs.  Swiftf,  S'.)  (la    370. 


r)50  stock-brokers  and  Stock  Exchanges. 

tures  "  during  the  day,  and  buys  or  sells  during  the  night 
to  cover  himself,  is  a  principal  and  not  an  agent,  and  can- 
not recover.' 

A  note  given  by  customers  to  Brokers,  to  cover  margins 
in  futures,  cannot  be  recovered  by  an  endorsee,  when  the 
transactions  are  gambling  ones.'^ 

"When  two  principals  jointly  made  purchases  of  wheat 
throurrh  commission  merchants,  one  is  entitled  to  recover 
from  the  other,  a  moiety  of  the  losses  on  the  transactions, 
and  commissions  paid  to  the  Broker,  wdien,  although  there 
might  be  a  suspicion  that  the  parties  through  whom  the 
plaintiff  principal  dealt,  through  his  Brokers,  were  dealers 
in  "  options,"  yet  it  was  not  so  pleaded  or  proved,  and  the 
court  would  not  presume  the  contract  to  be  illegal.^  But 
where  the  intention  of  both  parties  clearly  was  to  settle  by 
differences  only,  and  not  to  deliver  the  commodities  (hogs), 
although  actually  in  possession  of  one  of  the  parties  at  the 
time,  the  transaction  is  a  pure  wagering  one.^  When  in  a 
contract  for  the  sale  of  coi-ii,  the  plaintiff  vendee  contem- 
plated actual  delivery  to  him,  but  the  defendant  merely  in- 
tended to  speculate  on  differences  without  delivery,  the  con- 
tract is  not  a  wagering  one,  and  the  fact  that  plaintiff  knew 
that  defendant  intended  to  gamble,  does  not  make  such 
intention,  the  intention  of  both  parties,  so  as  to  render  the 
contract  one  of  a  gambling  character.^  If  the  buyer  of  corn 
for  future  delivery  intends  actual  delivery,  and  the  seller 
intends  to  dehver  the  corn  if  he  can  obtain   it  at  a  profit, 


'  Thompson    vs.    Cummings,    68       ^  Cockrell  vs.  Thompson,  85  Mo. 
Ga.  124.  510. 

'First  National  Bank  vs.  Oska-       ■•Johnson  vs.  Kaune,  21  Mo.  App. 
loosa  Packing  Co.,  66  Iowa,  41.       22. 

5  Jones  vs.  Shale,  34  Mo.  302. 


Actions  for  Money  Laid  Out.  651 

otherwise  to  pay  the  difference  in  money,  the  contract  is 
not  a  ffamblinir  one  under  the  statute  as  to  "futures."* 

It  was  held  in  Texas,  in  the  case  of  Cleveland  vs. 
Ileidenheinier,^  that  where  a  contract  for  future  delivery 
of  bacon  was  doul)tful,  a  request  by  the  vendee  to  have  the 
goods  delivered  on  delivery  day,  and  an  attempt  by  the 
vendor  to  deliver  them,  validates  it. 

(d.)   Actions  hij  Brokers  for  Money  Laid    Oi(t,  efe.,  and  Com- 
missions  in   Stock   Transactions. 

We  propose  to  consider  separateh'  those  cases  in  which 
the  defence  of  "  wager  ''  has  been  set  up  in  actions  brought 
by  Stock-brokers  to  I'ocover  for  money  laid  out  in  stock 
transactions  at  tlie  request  and  for  the  use  of  the  Client, 
together  with  commissicms  due  him  for  services  in  such 
dealings,  again  calling  attention  to  the  distinction  drawn 
by  the  decisions  between  this  class  of  cases  and  those  in 
which  the  contest  is  between  the  direct  i)arties  to  the  con- 
tract. 

In  the  outset  it  will  be  noticed  that  the  statute  of  Victo- 
ria does  not  render  wagering  contracts  themselves  "  ille- 
gal," but  declares  that  they  shall  be  "  null  and  void,"  and 
that  no  suit  siiall  be  maintained  upon  thcin.  In  this  re- 
spect it  differs  from  the  Stock-j(jbbing  Act  of  Sir  .lolin 
Barnard,  by  which  similar  contracts  were  ]>rohibitO(l  un- 
der a  penalty.  Accordingly,  no  claim  arising  out  of  such 
contracts  couhl  be  enforced  at  law  because  of  its  illegality. 
The  distinction  between  th<j  two  acts  is  forciblv  illusirattMi 
in  actions  i)V  lirokcrs  for  commissions.     .\s  we  have  seen 


•  DcierlinKVH.  Sloop,  09  .Mo  Aj)!)         'JJ  S.  W    H.-p.  .'i.'il. 
446. 


552  Stock-brokers  Jiiid  Stock  Exchanj^es. 

under  "  Sir  John  Barnard's  Act,"  a  IJi-oker  could  not  re- 
cover as  against  his  principal  for  commissions,  or  lor  money 
laid  out  for  him,  in  transactions  in  the  nature  of  gaming, 
because  the  Broker  could  not  estai)lish  his  rights  except 
by  showing  that  he  had  done  something  forbidden  under  a 
penalty,  and  consequently  illegal.^  Yet,  under  the  act  of 
8  and  9  Victoria,  the  contracts  being  voidable  only,^  a 
Broker  could  recover,^  even  if  he  knew  that  the  contract 
entered  into  was  void  under  the  statute;^  for  if  one  per- 
son requests  another  to  pay  any  loss  that  may  occur  in 
such  a  transaction,  there  is  a  continuing  request  to  pay  un- 
til revoked.'^  In  fine,  the  law  as  to  gaming  contracts  is, 
that  all  such  contracts  are  simply  null  and  void.  They 
are  not,  therefore,  illegal,  and  the  parties  making  them  are 
not  liable  to  any  actions  or  penalties. 

These  distinctions  were  very  forcibly  noticed  in  Rose- 
warne  vs.  Billing,  where  all  of  the  decisions  Avere  referred 
to.     In  that  case,  Erie,  C,  J.,  said  :  "  I  am  clearly  of  opin- 

'  Ante,    p.    483;    see    also   Wells  the  Canadian  Civil  Code  being  simi- 

vs.  Porter,  2  Bing.   (X.  C.)  722.  lar  to  the  English  statute). 

'  Higiiinson  vs.  Simpson,  L.  R.  2  ^  Id.     See  also  Oldham  vs.  Rams- 

C.  P.  D.  76.  den,  44  L.  J.  C.  P.  309;  Bubb  vs. 

*See    cases    ante,    p.    483;    also  Yelverton,  24  L.  T.  822;  Higginson 

Jessopp     vs.     Lutwyche,     10    Ex.  vs.  Simpson,  L.  R.  2  C.  P.  D.  76; 

614;    Knight    vs. Chambers,    15   C.  Beeston  vs.  Beeston,  I,.  R.  1  Ex. 

B.  562;  Knight  vs.  Fitch,  id.  566;  Div.  13;  Ex  parte  Pyke,  In  re  Lus- 

3  C.  L.  R.  567;  I  Jur.  (n.  s.)  526;  ter,  L.  R.  8  Ch.  Div.  7.54.     A  jobber 

24    I..    J.    C.    P.    122;    Bubb    vs.  may  recover  on  notes  given  by  one 

Yelverton,     24     L.     T.      (n.      s.)  to  an  outside  Broker  employed  by 

822.  him  to  conduct  dealings  in  stocks 

*  Rosewame  vs.  Billing,  15  C.  B.  and  shares,  which  were  known  by 

(n.  s.)  316;    Ex    parte    Rogers,   15  the  jobber  to  be  gambling  transac- 

Ch.  Div.  207;  Read  vs  Anderson,  13  tions,    and    which    were    endorsed 

Q.  B.  D.  779  (as  to  betting  agents) ;  over  by  the  Broker  to  the  jobber  for 

Forget  vs    Ostigney,  (1895)  \.  C.  valuable    consideration.     Lilly    vs. 

318  (as  to  Canadian  Stock-brokers,  Rankin,  56  L.  J.  Q.  B.  248. 


Actious  for  Money  Laid  Out.  653 

ion  that  if  a  man  loses  a  wager,  and  gets  another  to  pay 
the  money  for  him,  an  action  lies  for  the  recovery  of  the 
money  so  paid."' '  And  the  court  held  that  the  fact  that 
the  Broker  made  the  contracts  for  the  payment  of  differ- 
ences in  his  own  name,  according  to  the  usage  of  Brokers, 
but  for  the  account  of  his  principal,  nuule  no  difference  in 
the  result.  Of  course,  these  views  are  subject  to  modifica- 
tion and  change  where  the  language  of  a  statute  is  not  in 
substantial  accord  with  that  of  Victoria,  heretofore  cited  ; 
for  such  terms  may  undoubtedly  be  used  by  the  legislature 
as  would  prevent  any  recovery  upon  wagering  contracts 
either  directly  or  indirectly."^ 

In  the  case  of  Cooper  vs.  XeiP  it  ai)peared  that  the  de- 
fendant employed  one  B.,  a  Broker,  to  enter  into  contracts 
upon  the  Stock  Exchange  for  the  purchase  of  shares.  B. 
knew  the  defendant  did  not  intend  to  acce[)t  the  shares, 
but  only  to  receive  or  pay  "differences''  according  to  the 
rise  or  fall  in  the  market  price  of  the  shares.  B.  entered 
into  contracts  Avith  Jobbers  for  the  purchas(;  of  shares,  in 
pursuance  of  the  defendant's  instructions,  and,  according  to 
the  rules  of  the  Stock  Excliange,  became  i)ei-s()nallv  liable 
on  the  contracts.  He  was  afterwards  declared  insolvent, 
and  the  })laintiff,  as  his  trustee,  sued  uptm  an  implied  con- 
tract of  indemnity  against  the  claims  of  the  .Iol)bers.  At 
the  trial  the  jury  found  that  the  contracts  with  the  Job- 
bers were  nuii-e  time  b.ii'gains,  and  jiiduuicnt  was  given 
for  th(}  defijndant.  The  court,  upon  a|»pc;il,  however,  held 
that  the  verdict  was  unsatisfactory,  and  a  new  trial  was  di- 
rected ;  and,  in  giving  its  opinion,  the  court  foreshadowed 

'But    HOC    Hun",    P.    J.,   roritm,        '  .Sw;  its  t<i  thr  cITrct  of  tlit- Gam- 
in  F'areira   vh.    Gabcll,  89  Pu.   St.    in^  Ad,  1K«)'2,  post,  p.  5.').'>. 
H9.  »  i:{  Wc.-k.  N'<»U-.s,  I'JS. 


654  Stock-brokers  and  Stock  Exchanges. 

the  result  n'uclicd  in  TlKicker  vs.  JIurdy'  by  laying  down 
the  proposition  that  if  the  defendant  employed  B.  to  make 
contracts  upon  the  Stock  Exchange  with  the  Jobbers,  ac- 
cording to  the  rules  of  the  latter  bod}',  and  therefore  con- 
tracts that  were  real  so  far  as  the  Jobbers  were  concerned, 
but  that  B.  undertook  with  the  defendant  that  he  would  so 
manage,  or  endeavor  to  manage,  the  contracts  with  the 
Jobbei's  that  the  defendant  would  never  be  called  upon  to 
pay  or  receive  more  than  differences  if  B.  succeeded,  the 
implication  was  that  there  was  an  implied  contract  that 
if  B.  incurred  liabilities  without  his  own  fault  the  defend- 
ant wouUl  indemnify  liim.~ 

But  where  the  agreement  was  that  the  Broker  should,  at 
the  Client's  direction,  buy  shares  and  sell  them,  the  profits 
to  belong  to  the  Client — the  Broker  being  personally  liahle 
to  Jiim  for  these  profits — and  the  losses  to  be  borne  by  the 
Client,  the  Broker  personally,  and  wot  by  way  of  indemnity, 
receiving  those  losses — held,  a  ^vagering  contract  within  the 
statute.^  The  fact  that  the  Brokers  are  in  either  case  to 
receive  their  commissions  and  charges  does  not  alter  the 
result.* 

The  court,  however,  laid  stress  upon  the  want  of  averment 
by  the  Brokers  that  the  latter,  in  making  for  the  defendant 
a  contract  of  purchase  and  sale,  contracted  any  liabilities 
themselves  to  the  vendor  and  vendee,  or  that  they  paid  any 
money  to  the  vendor  or  received  any  money  from  the 
vendee. 

»  Post.  '  Byers  vs.  Beattie,  16  W.  R.  279; 

^  See  also,  as  explaining  and  dis-  2  Ir.  R.  C.  L.  220. 

tinguishing  this  case,  Thacker  vs.  *  Id.     It  was  also  held  that  this 

Hardy,  L.  R.  4  Q.  B.  D.  685;  and  see  invaUdity  might  be  taken  advan- 

also  Lyne  vs.  Siesfield,  1  H.  &  X.  tage  of  by  demurrer  without  any 

278.  special  plea. 


Actions  for  Money  Laid  Out.  555 

In  Eeggio  vs.  Stevens  it  Co./  which  was  an  action  by  a 
principal  to  recover  winnings,  and  asum  deposited  as  cover, 
the  defendant,  an  outside  Broker,  pleaded  that  the  transac- 
tions were  irauiblin<r  ones  under  the  act  of  1845,  and  the 
court  upheld  this  plea  so  far  as  regarded  the  winnings,  on 
the  ground  that  neither  party  intended  to  take  up  the  stock, 
but  held  plaintiff  entitled  to  the  "  cover.""  The  evidence 
indicated  that  the  plaintiff  might  have  the  right  to  call  for 
delivery,  but  this  question  was  not  considered  by  the  court, 
as  it  appeared  that  he  had  no  intention  of  taking  up  the 
stock. 

So  in  Ee  Green  -  it  was  held  that  "  contracts  of  sale  which 
do  not  contemplate  the  actual  lona  fide  delivery  of  the 
property  by  the  seller,  nor  payment  by  the  buyer,  but  are 
intended  to  be  settled  by  paying  the  difference  in  price  at 
some  future  time,  are  void  uiulir  the  Wisconsin  statute 
against  gaming  contracts."  And  this  rule  was  applied  to  a 
Broker  who  had  advanced  the  differences  on  such  a  contract 
for  a  bankrupt.  It  was  decided  he  could  not  prove  his 
claim  for  the  amount  so  advanced.  In  that  case  the  court, 
in  rendering  its  opinion,  said  :  "  liut,  i)hiiii  as  it  appeal's,  the 
case  of  Rosewarne  vs.  Billing,  cited  by  the  claimant's  coun- 
sel, seems  to  sanction  a  different  doctrine.  Hut  I  do  not 
think  that  case  can  be  regarded  as  the  law  upon  this  ])oint 
in  Enirland.  There  are  cases  in  contiict  with  it,  so  I  think 
it  may  l:>e  safely  asserted  that  the  weiglitof  English  author- 
ities is  with  Steers  vs.  Lashley."-' 

But,  as  we  shall  s(;e,  the  case  of  Ttosewarne  vs.  Billing 
ha.s  been  directly  endorsed  by  tin;  English  courts. 

In  1S92  the  gaming  act*  was  pas-scd  as  a  result  of  the  do- 

'  4  T.   L.   U.  .T-'fi.  »(iT<nn  U    (11 

'  l.-i  .Nul    IWnk.  Keg.  198.  •  W  i\:  .%  Viet.  c.  '.). 


5;3G  Stofk-brokers  am!  Slock  Exchanges. 

cisioii  in  ilie  betting  c;ise  ol"  Kccul  vs.  Anderson'  \Yhich  bekl 
that  ;i  betting  agent  might  recover  from  bis  principal  the 
amount  of  ii  bet  paid  by  him  on  behalf  of  his  principal,  al- 
though if  the  bet  had  not  been  paid,  the  winner  could  not, 
under  the  provisions  of  the  act  of  184:5,  recover  it.  It  pro- 
vided that  promises  to  I'epay  sums  jniid  under  contracts 
void  by  8  and  9  Vict.  c.  loO,  should  be  null  and  void.  There 
have  been  no  decisions  under  this  statute,  as  to  transactions 
on  the  Stock  Exchange,  or  between  Stock- brokers  and  their 
principals,  although  there  have  been  several  decisions  as  to 
betting  and  wagering  generally,  from  which  it  would  seem 
that  a  Broker  cannot  now  recover  unless  he  was  ignorant 
of  the  fact  that  the  transactions  were  gambling  ones,  or  un- 
less the  law  of  estoppel  aids  him.^' 

Mr.  G.  Herbert  Stutfield,  in  his  works  on  "  Betting,  Time- 
Bargains  and  Gaming,"  and  "  Rules  and  Usages  of  the 
Stock  Exchange,''  is  of  opinion  that  the  act  of  1892  does 
not  affect  the  relations  between  Stock-broker  and  Client,  as 
transactions  in  the  Stock  Exchange  are  never  "difference 
bargains "  or  wager  contracts,  although  "  bucket  shop " 
transactions  might  be  otherwise.  In  a  footnote  to  C bitty 's 
English  Statutes,  vol.  4,  p.  57,  the  editor,  Mr.  Lely,  is  also 
of  oi)inion  that  this  statute  does  not  make  Stock  Exchange 
speculative  transactions  void  even  as  between  Broker  and 
principal,  as  ordinarily  conducted.  Although  an  agent  can- 
not, under  the  act,  recover,  a  principal  may  recover  bets 
paid  to  the  agent.^ 

Pennsylvania  presents  a  number  of  decisions  in  which  the 

»  13  Q.  B.  D.  779.  (1895)   1  Q.  B.  D.  698;  Burpe  vs. 

'Tatem  vs.  Reeve, (1893)   1  Q.  B.  Ashley,  (1900)  1  Q.  B.  754. 

44;  Carney  vs.  Plimmer,(1897)    1  Q.  *  De  Mattos  vs.  Benjamin,  70  L. 

B.  635;  Saffrey  vs.  Mayer,  (1901)  1  T.  560.     See  also  Coldridge  "Law 

K.  B.   11;  O'SuUivan  vs.  Thomas,  of  GambUng,"  chaptors  IX  and  X 


Actions  for  Money  Laid  Out.  557 

defence  of  "  wager  "  was  interposed  to  actions  by  Stock- 
brokei*s,  and  the  highest  tribunal  in  that  State  has  laid 
down  the  doctrine  in  favor  of  sustaining  the  defence,  with 
such  manifest  rigidity  and  so  inconsistently  with  the  lead- 
ing decisions  of  England  and  the  States  of  the  Union  as  to 
draw  forth  sharp  criticisms  both  from  the  bench  ami  the 
bar  of  its  own  State.^ 

The  first  case  which  we  deem  it  necessary  to  notice  is 
Brua's  Appeal.^  In  that  case  one  K.  made  a  contract  in 
writing  with  one  11 ,  as  follows  :  ''  I  have  this  day  soUl  and 
agreed  to  deliver  to  J.  S.  II.,  or  to  his  order,  twenty-live 
days  from  this  date,  two  hundred  shares  Harlem  Railroad 
common  stock,  at  the  rate  of  sixty  dollars  per  share  ;"and 
at  the  same  time  delivered  his  i)r()niissory  note  for  $1,0(»0, 
as  martjin  on  the  contract,  it  iK'in'2:  a  "•  shoi't  sale  ; "  and 
subsequently,  as  the  stock  rose  in  price,  delivereil  to  II. 
other  notes  as  additional  margin.  K.  having  made  an  as- 
signment, these  notes  wei'e  proved  as  claims  against  his 
estate,  and  were  allowed  by  the  auditors.  Upon  appeal  the 
Supreme  Court  reversed  tliis  judgment,  u[)on  the  ground 
that  as  the  auditors  had  lound  as  a  fact  that"  the  notes  were 
a  component  pai't  of  a  stock-gambling  transaction,  in  which 
K.,  in  effect,  betted  that  in  twenty-five  days  Harlem  stock 
would  sell  at  lesjs  than  $0(>,"  such  finding  was  conclusive 
up<m  the  court,  and  it  necessarily  followed  that,  being  a 
"gami^ling  contract,  it  could  not  be  enforced;  and  that  the 
hohler  of  the  promissory  notes,  havingknown  this,  and  hav- 
ing taken  them  after  they  were  due,  it  was  established  that 

'  .Se<!  iirtidc  of  .Mr.  Ju!^1i(<;  liri^^s,  Ihi.s    f|U(*sti<)ii    is    )inii|uo,    and    op- 

38    Lo;j     Int     (I'll)    IKi;    Lewis  on  |>mhi'(1  to  all  nuthorilios  "     S«'o  also 

Sto<-kH,  ctr  ,   1(K>,  wlnT(!  it   in  H.iiil,  Hi<l<Ilf  on  Stofk-hrokurs,  llfj. 
"The    law    of    I'oniwylvania    up<jii        '  5.')  I'a.  St.  294. 


558  Stock-brokers  and  Stock  Exchanges. 

there  was  no  legal  consideration  for  them,  and  that  the 
holder  was  not  in  a  position  to  escape  the  taint  that  renders 
them  worthless."'  This  is  the  whole  of  that  case,  and  it 
will  be  observed  that  it  was  n(jt  one  which  occurred  through 
the  instrumentality  of  Stock-brokers,  but  was  a  transaction 
between  the  parties  themselves ;  and  the  appellate  court 
found,  in  addition  to  the  facts  stated,  that  "  the  actual 
transfer  of  stock  between  these  parties  was  not  contem- 
plated by  them." 

The  court  did  not  decide  that  "short  sales"  were  illegal, 
but  it  used  this  language :  "  It  is  said  the  form  in  which 
this  contract  appears  enters  largely  into  the  business  of 
stock-brokerage.  This  is  a  mistaTic  ;  the  lona  Jide '^wrchixs.Q 
of  stocks,  no  doubt,  can  be  conducted  in  a  legitimate  way, 
and  is  so,  generally,  without  trenching  in  tlie  least  on  the 
gambler's  province." 

In  fact,  in  the  next  case  upon  the  subject  which  is  re- 
ported in  that  State,  Smith  vs.  Bouvier,'  a  "  short  sale  "  was 
distinctly  upheld.  In  that  case  one  K.,  not  owning  stock, 
employed  Brokers  to  sell  stock  for  him  at  a  named  price,  to 
be  delivered  on  a  particular  day.  The  Brokers  sold  as  or- 
dered, and,  as  is  customary,  borrowed  the  stocks  for  deliv- 
erv  ;  the  stock  appreciating  in  price,  the  Brokers  bought 
the  same  "  in,"  and  commenced  an  action  for  money  laid 
out  and  expended.  The  main  contention  in  the  case  was 
whether  or  not  the  transaction  was  a  gambling  one,  and 
would  for  that  reason  prevent  the  Brokers  recovering  money 
advanced  and  commissions  earned.  The  court  behnv  sub- 
mitted to  the  jury  the  question,  whether  the  transaction 
was  one  in  which  the  parties  agreed  that  mere  differences 

'  70  Pa.  St.  325. 


Actions  for  Money  Laid  Out.  559 

■were  to  be  paid,  or  a  real  transaction;  and  the  jury  found 
for  the  plaintiff. 

Upon  api)eal,  the  defendant  contended  "  that  the  jury 
should  have  been  instructed  that  all  purchases  of  stocks, 
with  a  view  to  resell  and  make  profit  on  their  rise,  or 
contracts  to  furnish  stocks  on  time,  should  be  declared  gam- 
bling transactions  and  illegal,  not  only  between  buyer  and 
seller,  but  as  to  Brokers  and  agents  through  whom  the 
sales  or  purchases  had  been  made."  Commenting  upon  this 
argument,  the  learned  court  said  :  "  This  would  make  a 
great  inroad  into  what  has,  for  an  indefinite  periotl,  been 
regarded  as  a  legitimate  business,  and  would  either  destroy 
it  altogether,  or,  if  continued,  put  the  Brokers  at  the  mercy 
of  those  for  whom  they  transact  sucli  business.  Let  it  be 
understood  that  a  Broker  has  no  power  to  recover  either 
for  advances  or  commissions,  however  honestly  he  may 
have  dealt,  and  there  will  be  found  enough  persons  whose 
easy  consciences  would  tlu'ow  their  losses  upon  the  shoulders 
of  those  who  advanced  the  money  and  earned  commissions 
in  their  service.  It  would  be  a  very  palpable  wrong  to 
the  Brokers,  who  are  licensed  to  do  such  business,  if  such 
were  held  to  be  the  law.  To  this  extent  Brua's  Appeal* 
never  was  intended  to  gij."  In  C(jnclusion,  the  court  said : 
"  Wiiether  the  transactions  embiaced  in  tliis  case  were 
bona  Jid'.\  or  were  merely  in  a  form  to  cover  gambling 
transactions,  after  a  full  explanation,  was  left  to  the 
jury." 

It  will  be  observed  that  the  above  was  a  clear  case  of 
s|)eculating  on  "margins,"  wliicli  t  lie  courts,  in  tlic  o|iiiiions 
hereafter  referred   to,  regarded  as  so  obnoxious;  and   that 

'  Ante,  p.  557. 


560  Stock-brokers  and  Stock  Exchanges. 

upon  a  "  margin  "  cni>ital  of  $10,000  the  Client  sold  2,000 
shares  of  stock  "  short,"  of  the  market  value  of  $334,000. 

Then  follows  the  case  of  Maxton  vs.  Gheen.'  That  was 
an  action  of  assumpsit,  brought  by  Stock-brokers  against 
their  Client  to  recover  a  balance  of  account  arising  from 
transactions  in  stocks.  The  defence  was  that  the  indebt- 
edness arose  out  of  gambling  in  stocks.  It  appeared  that 
the  transactions  were  "  short "  sales  of  stock  ;  but  the 
Brokers,  in  the  first  instance,  had  no  knowledge  that  the 
defendant  did  not  have  the  stock,  although  after  the  second 
sale  they  knew  he  was  selling  "  short."  It  also  distinctly 
appeared  that  the  stocks  were  sold  for  account  of  defend- 
ant on  "  margin  ; "  the  Brokers  testifying  "  that  when 
they  sold  stock  short  they  required  from  two  to  ten  dollars 
per  share  on  margin,  unless  the  party  left  the  stock  with 
them."  The  plaintiffs  had  a  verdict,  which  was  affirmed  by 
the  appellate  court,  Agnew,  C.  J.,  delivering  the  opinion, 
and  holding  that  the  facts  did  not  disclose  ''  a  transaction 
in  stocks  by  way  of  margin,  settlement  of  differences  and 
payment  of  the  gain  or  loss,  without  any  intention  to  de- 
liver the  stocks." 

The  next  case  to  which  we  will  refer  is  Fareira  vs. 
Gabell.^  That  was  an  action  on  certain  promissory  notes 
made  to  plaintiff,  a  Stock-broker,  some  of  the  notes  being 
given  as  "  margins  on  stock  contracts,"  and  the  others  for  an 
indebtedness  arising  out  of  losses  in  stock  transactions. 
The  defence  was  that  the  transactions  Avere  "  wagei-s." 
The  facts  of  this  case  are  very  meagrely  reported  ;  but  it 
seems  that  the  defendant  jiroved  that  the  contracts  made 
through  the  agency  of  plaintiff  were  simply  wagering  con- 

'  75  Pa.  St.  166.  » 89  Pa.  St.  89. 


Actions  for  Mouey  Laid  Out.  661 

tracts.  The  leai'ned  trial  judge  very  fairly  submitted  the 
question  to  the  jury  v^hether  the  transactions  were  gam- 
bling ones  ;  but  he  iUustrated  the  general  rule  of  the  law  by 
stating  a  sup})ositious  case  between  fico  jx'rsons  dealing  di- 
rectly together  in  wheats  without  any  intention,  on  the  one 
hand,  to  deliver,  or,  on  the  othrr  hand,  to  receive.  But 
that  illustration  is  entirely  ineffective  in  presenting  a  con- 
tract in  which  a  Stock-brokei',  acting  for  a  commission^ 
makes  transactions  for  his  Client  upon  a  Stock  Exchange 
with  third  persons^  actually  advancing  money,  and  actually 
receiving,  in  some  form,  the  securities.  However,  the 
question  of  wager  or  no  wager  was  submitted  to  the  jury, 
and  a  verdict  was  found  for  the  defendant.  Upon  appeal 
to  the  Supreme  Court  this  conclusion  was  affirmed  without 
any  opinion,  the  court  merely  referring  to  Brua's  Appeal 
and  Smith  vs.  Bcnivier  as  entirely  sustaining  the  judge's 
charge. 

As  we  have  said,  the  facts  of  this  case  are  reported  so 
sparsely  as  to  deprive  us  of  the  power  of  criticising  the  re- 
sults reached  by  the  jury  ;  but  as  the  case  stands,  in  view 
of  the  fact  that  the  (picstion  was  fairly  submitted  to  the  jury, 
their  decision  would  seem  to  be  conclusive.  But  the  next 
case — North  vs.  I'hilipps' — which  is  reported  in  the  same 
book  a.s  the  preceding  case  and  was  decided  at  the  same 
term,  is  utterly  ii-reconcihiblc  with  ilnt  previous  (h-eisionsof 
the  courts  of  that  State.  In  that  case  the  defendants,  Stock- 
brokers, purchased  certain  stock  for  account  of  the  ])IaintifT 
on  "  margin,"  the  contract  being  that  plaintiff  should  con- 
stantly keep  witii  the  lirokers  ten  ])er  cent  of  the  par  value 
of   tiie  sto<-k.     'V\u\  stock   declining,  deftMulants   i-c(jiicste(i 

'  K'l    ['.i     St      •.'.".(I 

86 


562  Stock-brokers  and  Stock  Kxchaiiges. 

additional  margins,  and  upon  failure  to  accede  to  the  de- 
mand, the  stocks  were  sold.  The  })laintiff  thereupon  brought 
an  action  of  assumpsit  against  the  Brokers  to  i-ecover  dam- 
ages, upon  the  ei'r<meous  theory  that  there  had  been  a  ]iur- 
chase  and  sale  of  the  stock  between  the  2>^(ii)itiff  and  de- 
fendants;  and  recovered  a  verdict  based  uj)on  the  dilfcr- 
ence  between  the  value  of  the  stock  on  the  day  it  was  sold, 
and  the  highest  value  it  had  reached  down  to  the  day  of  the 
trial.  Upon  appeal  to  the  Supreme  Court,  the  doctrine  of 
the  court  below  upon  the  question  of  damage  was  repu- 
diated ;  and  the  appellate  court  did  not  notice  the/brm  (f 
the  action,  but  (through  Mr.  Justice  Goi'don)  mainly  occu- 
pied itself  in  examining  the  character  of  the  contract  between 
the  parties,  and  adjudged  it  to  be  a  mere  gambling  transac- 
tion. The  court  held  that  the  stock,  although  purchased 
by  the  Brokers  at  the  request  and  for  the  account  of  the 
Client,  was  not  his  property,  but  that  it  belonged  to  the 
Brokers  ;  and  in  face  of  the  fact  that  the  plaintiff  had  testi- 
fied that  he  expected  to  pay  for  the  same  and  take  it  up, 
and  ignoring  the  ])owerful  circumstance  that  the  jury  had 
passed  upon  the  transaction  and  decided  in  favor  of  its  valid- 
ity— the  reasoning  of  the  learned  court  being  that  the  dis- 
parity between  the  Client's  wealth  and  the  amount  of  the 
purchase-money  required  to  purchase  the  stock  proved  con- 
clusively that  the  contract  was  a  mere  gambling  devise. 
The  learned  court  paid  no  attention  whatever  to  the  finding 
of  the  jury.  "We  shall  reserve  our  criticism  upon  this  case 
until  we  have  examined  the  other  cases,  merely  observing 
that  the  form  of  the  action  would  have  more  properly 
been  ex  delicto  in  trover  for  the  conversion  of  the  Client's 
stocks  by  an  untimely  and  illegal  sale  of  the  same  by  the 
Broker. 


Actions  for  .Money  Laid  Out.  563 

In  Gheen  vs.  Johnson '  the  court,  through  the  same  learned 
judge,  went  out  of  its  way  to  assert  the  same  doctrine  as 
that  contained  in  the  preceding  case,  and  was  only  pre- 
vented from  applying  it  by  the  fact  that  the  record  did  not 
raise  the  legality  of  the  contracts.  But  the  principle  estab- 
lished in  Fareira  vs.  Gabell  was  most  vigorously  upturned 
in  the  subsequent  cases  of  Ruchizky  vs.  De  Haven  ^  and 
Smith  vs.  Thomas.^  In  Ttuchizky  vs.  De  Haven  the  court 
held  that  money  received  by  a  Stock-broker  fi'oni  a  minor 
to  carry  on  transactions  in  stocks  may  be  recovered  back 
from  the  Broker,  such  a  contract  being  void  ah  initio.  In 
reversing  the  opinion  of  the  court  below,^  Mr.  Justice  Gor- 
don said  :  "  When,  under  the  case  stated,  the  court  below  as- 
sumed that  the  defendant  must  be  regarded  as  the  agents 
of  R.  [the  infant],  ...  it  committed  an  error.  The  par- 
ties were  not  dealing  in  stocks,  but  in  margins,  and  II.  knew 
no  principals  but  De  II.  and  T.  [the  Brokers]."  The  court 
concluded  that  the  contracts  fell  under  the  ban  of  a  gam- 
bling transaction  ;  and  that  the  Client,  being  an  infant,  could 
recover  the  money  and  securities  deposited  with  the  Brokers 
as  margin,  although  the  Brokers  had  no  knowledge  that  ho 
was  not  suijuria.  The  court,  in  its  opinion,  animadverted 
most  severely,  but  without  the  slightest  foundation  in  fact, 
upon  the  conduct  of  the  Brokers.  In  speaking  of  tlu'ir  wunt 
of  knowledge  of  tiie  infancy  of  their  Client,  the  following 
hinguage  was  used  :  ''  Mcjrcover,  then' did  not  know  because 

'  00  Pa.  St.  38.  Hui  juris,  money  paid  to  the  Broker 

'.38    LcK.    Int.    ll.G;    97    I'u.    St.  in  settlement  of  differencea  in  Htock 

202.  triin.saction.s    cannot    be    rerovertnl 

'  Id  ,  H.  c.  Huh  nom    liickwm's  Kxr.  back.     .Mcrriuni  vs.  Pul)lic  Grain  iV 

vs.  Thrmi.-LS,  U7  Pa.  St.  27H.  Stock  lOxdianiic,  1  Pa.  Co.  Vt.  Ucp 

•Per   .Mitcbdl,   J,   M    I.c^.    Int.  17^,  di.stin^MiiHhinK  Uucliizky  vs.  Do 

(Pa.)    174.     When   the  partieH  arc  Haven,  supra. 


504  Stock-brokers  and  Stock  Exclianges. 

they  did  not  choose  to  inquire.  They  were  getting  his 
money  ;  and  like  all  other  })ersons  engaged  in  unlawful  call- 
ings, they  cared  not  whether  that  money  came  from  man, 
woman,  (»!•  child — whether  their  victim  was  young  or  old, 
sane  or  insane.  .  .  .  AVe  repeat,  therefore,  there  is  nothing 
to  be  returned  to  the  defendant.  Thev  lost  nothinof  in  this 
transaction,  and  hence  can  the  more  easily  return  to  the 
plaintiff's  estate  that  which  belongs  to  it." 

Then  follows  the  case  of  Smith  vs.  Thomas,'  in  which 
the  court  took  occasion  to  review  the  subject  anew  and  to 
reiterate  most  emphatically  its  former  decisions.  In  that 
case  the  action  was  assumpsit,  and  was  brought  by  a  Stock- 
broker against  his  Client  to  recover  a  balance  due  on  cer- 
tain stock  transactions.  Upon  the  trial  the  plaintiff  had 
judgment;  but  on  appeal  this  was  reversed,  the  opinion  be- 
ing again  delivered  by  Mr.  Justice  Gordon.  That  learned 
judge's  statement  of  the  facts  is  as  follows  :  "  Thomas  [the 
Broker]  swears  that  he  sold  for  Dickson  500  shares  of  Penn- 
sylvania Railroad  stock  short ;  and  so  Thomas  further  on 
explains  by  saying  that  at  the  time  he  professed  to  sell  this 
stock  he  had  no  such  stock  in  his  hands  to  sell.  Neverthe- 
less, he  says,  when  he  sold  these  500  shares  he  delivered 
thera.  This  anomalous  kind  of  testimony  he  explains  by 
sa3'ing  that  this  delivery  was  made  on  the  clearing-house 
sheet,  which  means  a  mere  settlement  of  differences.  It  ap- 
pears also  from  this  same  testimony  that,  in  order  pi-operiy 
to  keep  up  appearances  when  the  time  came  for  delivery,  he 
had  to  borrow  500  shares  of  stock  from  somebody,  whose 
name  does  not  appear,  and  of  those  there  \vas  no  actual  de- 
livery, but,  as  the  witness  says,  it  came  through  the  clearing- 

'  38  Leg.  Int.  115;  sub  nom.  Dickson's  Exr.  vs.  Thomas,  97  Pa.  St.  278. 


Actions  for  Moiioy  Laid  Out.  SGo 

house  sheet.  All  this  means,  in  couiinon  parlance,  that 
Thomas  sold  for  Dickson  500  shares  of  stock,  which  Dick- 
son at  that  time  neither  had  nor  intended  to  have,  and  that, 
under  the  pretence  of  meeting  this  contnict  when  it  fell  due, 
Thomas  pretended  to  borrow  oUO  shares,  which  were  not 
delivered  to  him  ;  that  this  altogether  lictitious  transaction 
was  accomplished  through  the  agency  of  the  clearing-house, 
and  was  one  in  which  no  other  parties  were  known  but 
Thomas  and  Dickson,  who  were  to  account  to  each  other 
for  differences  only."  And  upon  this  remarkably  erroneous 
statement  the  learned  judge  predicated  the  result  reached, 
that  "  confessedly,  then,  this  was  a  dealing  in  differences  or 
margins — a  wagering  contract — and  therefore  utterly  void  ;" 
and  that  there  was  no  question  as  to  a  bona  fide  contract 
upon  which  the  jury  was  to  pass. 

The  above  represent  some  of  the  leading  decisions  of  the 
Supreme  Court  of  Pennsylvania  upon  this  subject  of  wager 
in  respect  to  stock  transactions ;  and  it  is  dilficult  to  con- 
ceive how  a  court  whose  decisions  are  received  with  such 
universal  homage  could  have  gone  so  far  astray  upon  a  sub- 
ject which  vitally  affects  one  of  the  most  important  mon- 
eyed interests  of  that  State. 

First.  The  decisions  of  the  court  are  in  hostility  to  each 
other.  In  Smith  vs.  iiouvier'  the  facts  were  precisely  simi- 
lar to  those  of  Smith  vs.  Thomas.  They  both  represented 
"short"  transactions  in  stocks  upon  a  margin,  in  Smith 
vs.  Bon vier  the  jury  found  for  the  broker  and  the  verdict 
was  sustaine<i  ;  but  in  Smith  vs.  Tiiomas  a  similar  ver<li(rt 
was  reversed,  tlie  court  arbitrarily  setting  aside  the  conelu 
sion  of  the  jury.     The  eh'uient  of  the  ch-aring-house  which 

'  70  Pa.  St.  325. 


r)0('»  Shu'k-brokors  and  Stock  Kxclmiiges. 

appeareil  in  Smith  vs.  Thomas  can  make  no  difference  be- 
tween the  cases,  because  that  system,  as  all  familiar  with  its 
workings  know,  was  created  to  facilitate  the  lousiness  ;  and, 
indeed,  the  fact  of  stocks  being  "  cleared,"  if  it  shows  any- 
thing, ))roves  that  the  transactions  were  real.  It  is  utterly 
impossible  to  reconcile  the  two  cases,  and  yet  Smith  vs. 
Bouvier  was  cited  with  a})proval  in  Smith  vs.  Thomas.  It  is 
equally  impossible  to  harmonize  the  last-named  adjudication 
with  the  case  of  Maxton  vs.  Gheen,'  where  the  Client  was 
selling  stock  "  short  "  on  margins,  and  where  a  verdict  for 
the  Broker  was  sustained.  Although  the  Broker  swore 
that  at  first  he  did  not  know  that  his  Client  was  selling 
"  short,"  yet  he  admitted  that  after  the  second  transaction 
he  acquired  that  knowledge  ;  and  it  is  perfectly  manifest, 
from  reading  the  case,  that  it  Avas  an  everyday  speculation 
on  margin.  Xorth  vs.  Philipps^  and  Ruchizky  vs.  De 
Haven  ^  are  illustrations  of  "  long  "  transactions — that  is, 
purchases  of  stocks  for  Clients  on  margin.  The  facts  in- 
volved were  in  no  sense  different  from  those  presented  in 
the  case  of  Wyncoop  vs.  Seal,^  where  stocks  were  purchased 
on  a  margin  ;  and  it  did  not  occur  either  to  the  counsel  or 
court,  in  the  last-mentioned  case,  to  suggest  that  the  trans- 
action was  void  as  a  "  wager." 

Second.  The  fundamental  error  into  which  the  Pennsylva- 
nia court  has  fallen  arises  from  the  fact  that  the  decisions 
have  proceeded  upon  the  assumption  that  the  dealings  ^vere 
merely  between  the  Broker  and  his  Client,  without  the  in- 
tervention of  any  third  persons ;  in  fine,  of  treating  a 
transaction  in  stocks  conducted  through  the  medium  of  the 

•  75  Pa.  St.  166.  '  38  Leg.  Int.  115.     See  ante,  p. 

=  89  Pa.  St.    250.      See  ante,  p.    563. 
561.  ♦  64  Pa.  St.  361. 


Actions  for  Money  Laid  Out.  5(37 

Stock  Exchange  as  one  in  effect  between  a  vendor  and 
vendee,  bargaining  for  mere  ditferences.  This  is  very  far 
from  the  fact.  In  the  third  chapter  of  this  book,  the  de- 
tails of  a  speculative  transaction  in  stocks  is  fully  set  forth, 
and  it  is  not  necessary  to  repeat  the  same  liere;*  but  the 
court  does  a  manifest  injustice  to  the  Stock-broker  when  it 
treats  him  as  one  den'vi/Kj  henejit  from  his  Client's  losses. 
This,  with  great  respect,  is  as  absurd  as  it  is  unfair.  The 
Broker  has  no  interest  in  the  business  except  to  the  extent 
of  his  commissions,  when  he  makes  actual  sales  or  purchases 
with  third  persons  on  account  of  his  CHent,  which  was  clearly 
shown  in  the  cases  in  question.  The  version  of  the  transac- 
tion given  by  Mr.  Justice  Gordon  is  that  of  a  sharper  fleec- 
ing his  innocent  victim  ;  and  in  that  case,  upon  such 
erroneous  premises,  the  Broker  was  compelled  to  lose  a  con- 
siderable sura  of  mone}',  which  he  proved  he  had  actually 
paid  out  for  his  Clients. 

The  character  of  the  business  is  shown  by  a  simple  illus- 
tration. A  orders  B,  a  Stock-broker,  to  purchase  100 
shares  of  a  certain  stock  at  par,  and  depctsits  with  him 
$1,0(KJ.  The  Broker,  in  consideration  of  the  commission 
and  of  receiving  interest  for  his  money,  or  for  such  other 
consideration  as  may  enter  into  the  arrangement,  there- 
upon purcha.ses  at  the  Stock  Exchange  from  C,  a  fellow- 
Broker,  the  stock,  which  is  duly  (leliverrd  to  15,  and  the 
sum  of  $10,000  jiaid  to  ( ".  1'  a<lvances  the  dillerence  be- 
tween the  amount  lie  receives  from  his  Clitmt  and  the 
purchase-money  from  his  own  fimds,  and  holds  the  stock  as 
security.  Thereupon  the  stock  be(M)iiies  the  jiro|)erty  ot 
the    (Jlient ;    he  receiv(,'s  the  (JivKl.iids ;  pays  the  calls;  it 

'Ch.   III.  J),    isi. 


i){jS  Slock-brokcrs  and  Slock  Kxcluui^es. 

passes  to  liis  assi^niee  in  bankruptcy,  should  he  become 
bankrupt;  and,  in  line,  all  of  the  attributes  of  ownership 
attach  to  the  Client.^  We  find  here,  then,  an  actual  jmr- 
chase  and  delivery  of  stock.  This  is  the  view  of  the  transac- 
tion presented  in  AVynkoop  vs.  Seal.'  Hare,  P.  J.,  in 
Fareira  vs.  Gabell,'  defines  a  wager  to  be  "a  contract  in 
which  the  parties  stipuhite  that  they  shall  gain  or  lose  upon 
the  happening  of  an  uncertain  event,  in  wliich  they  have  no 
interest  except  that  arising  from  the  possibility  of  such  gain 
oi"  loss."  Jkit  it  is  pei'fectly  apparent  that  the  transaction 
which  we  have  set  forth  is  not  embraced  within  this  defini- 
tion. It  might  apply  as  between  A,  the  vendor,  and  C,  the 
vendee ;  but  as  between  A,  the  vendor,  and  B,  his  Broker, 
there  is  clearly  no  bet  or  wager,  B's  interest  in  the  transac- 
tion being  merely  to  the  extent  of  his  commissions.  Nor 
does  the  Broker  act  as  the  Client's  agent  in  gambling  sales 
and  purchases  of  stocks.  The  Broker,  in  jiursuance  of  his 
Client's  directions,  makes  ae^^w^  bargains  enforceable  in  the 
courts  and  in  the  forum  of  the  Stock  Exchange,  and  whose 
non-fulfilment  renders  him  liable  to  heavy  damages.  In 
fine,  the  doctrine  of  wager  must  be  confined  to  the  actual 
parties  concerned,  and  cannot  reasonably  be  extended  to 
defeat  the  right  of  a  Broker  to  recover  moneys  paid  out  for 
his  Client  in  r^/Z  transactions  with  f/u'/wl  j)ersons.  These 
views  are  forcibly  illustrated  in  the  case  of  Thacker  vs. 
Hardy/  whicii  should  be  consulted  in  this  connection. 

Third.  But,  in  any  event,  the  question  as  to  whether  a 
])articular  transaction  constitutes  a  wager  is  one  for  the 
jury ;    and    this    well-settled    I'ule,    although   laid    down  in 

'  See  also  Ch.  III.  p.  182,  where       =  64  Pa.  St.  361. 
the    transaction    is    further    illus-       '  89  Pa.  St.  89. 
trated.  ■■  27  W.  R.  158. 


Actious  for  Mouey  Laid  Out.  569 

Smith   vs.   Bouvieiy  luis    been   ruthlessly  violated  by  the 
Pennsylvania  courts  in  the  cases  referred  to.^ 

The  case  in  which  the  dealings  of  the  Stock  Exchange 

'70  Pa.  St.  325.  149  Pa.  St.   167;  McNaughton  va. 

'  See  also  Kirkpatrick  vs.  Boiisall,  Haldeman,  U>0  Pa.  8t.  144.  The 
72  Pa.  St.  155;  Bigelow  vs.  Bene-  fact  that  the  customer's  means  were 
diet,  70  N.  Y.  202.  A  summary  of  inadequate  to  enable  him  to  carry 
the  decisions  of  the  courts  of  Pemi-  out  a  stock  contract,  may  be  con- 
sylvania  subsequent  to  those  men-  sidered  by  the  jury.  Myers  vs. 
tioned  in  the  text  is  here  appended,  Tobias,  24  W.  X.  C.  432. 
and  it  only  remains  to  add  that,  as  In  an  action  by  a  Broker  to  re- 
late as  1$96,  the  District  Court,  in  cover  for  loss  on  an  oil  transaction, 
Taft  vs.  Riesenman,  7  Pa.  Dist.  R.  the  question  whether  there  was  a 
496,  quoted  with  approval  the  deci-  bona  fide  intention  to  deliver  the  oil 
tion  in  Ruchizky  vs.  De  Haven,  was  for  the  jury.  Thompson  va. 
supra,  that  "  \Mien  a  person  enters  Richer,  123  Pa.  St.  457.  When 
into  stock  gambling  transactions  stock  transactions  amounted  within 
through  the  medium  of  a  Broker,  he  three  years  to  about  $70,(X)0,  and  it 
will  be  deemed  to  be  dealing  with  was  shown  that  tlie  Ghent  had  only 
such  Broker,  a.s  a  principal,  and  not  about  SS,000  inve-sted  in  business, 
as  an  agent."  from  which  he  derived  a  yearly  in- 

In  Griffith's  Appeal,  16  W.  N.  C.  come  of  S5,00(),  and  that  there  was 
249;  42  L.  I.  277,  it  was  held  that  as  no  intention  to  deliver  or  receive 
contracts  in  stocLs  on  margins  are  stocks,  a  note  given  to  the  Broker 
not  enforceable,  a  judgment  on  a  for  losses  was  held  irrecoverable, 
bond  given  by  a  Client  to  his  Broker  Gaw  vs.  Bennett,  1.53  Pa.  247. 
to  secure  the  margins  cannot  be  Wlien  a  customer  paid  25  per 
enforced  by  an  assignee,  unless  the  cent  upon  each  purchiL>*e  of  stock, 
doctrine  of  estopi>cl  applies.  Such  and,  when  only  a  small  portion 
a  bond  is  invalid  for  want  of  con-  thereof  was  bought,  In*  deposited 
sideration.  Griffiths  vs.  Scare,  112  half  the  amount  of  such  latter  pur- 
Pa.  St.   .523.  chase  witii  the  Broker  in  bonds  ils 

It  was  held  in   Peters  vs.  Grim,  collatend,  and  p.'iid  tlie  balance  duo 

149  Pa.  St.  103,  that  when  there  is  upon    the   entire    purcha;<o,    which 

an  intention  to  deliver  stocks  there  was  large,  within  eighteen  months, 

Ls   no   gambling,    even   though   the  the  transaction  w.is  not  a  gambling 

delivery     Ls     postpone*!,     and     the  one  to  be  settl«?d   by   pnymiMit  of 

stock    carried    on   marnns  in    the  differences.     Coin.   vs.    Harn-tt.   40 

ifiterval.     .\nd    even    if   the   trans-  Let:   Iiit   (Pa  )  474. 

action-s  were  {rambling  ones,  money  When  hUwkH  wer<»  purchaMNl  by  a 

deposited  can  be  rocoverwi  from  the  Broker  luid  paid  for  by  the  Client, 

Broker   when   the   tran.sa<tioiis  are  and   were  then  Nold  by  tiie  nr<iker, 

dosed.     lb.;    Rcpplicr   vs.  Jacobs,  who  rvtuined  the  procuudu,  out  u( 


570 


Stock-brokers  and  Stock  Exchanges. 


^vere  examined  most  thoroughly  in  its  relation  to  the  act 
concerning  wagers  is  the  one  of  Thacker  vs.  Hardy .^  This 
action  was  brought  by  a  Broker  against  his  principal  for 


which  he  bouejht  other  stocks  for 
the  Ghent,  and  a  number  of  similar 
transactions  followed  in  which  the 
stocks  bought  were  received  by  the 
Broker  for  the  customer,  and  those 
sold  were  delivered  by  him  to  the 
purchaser,  the  transactions  were  not 
of  a  wagering  character,  and  the 
Broker  was  held  entitled  to  recover 
a  balance  due  to  him  on  the  trans- 
actions. Hopkins  vs.  O'Kane,  169 
Pa.  St.  478.  And  although  stock 
transactions  are  gambling  ones,  yet 
if  the  Client  finally  demands  the 
stock,  and  the  Broker  tenders  it,  the 
latter  may  recover  the  value  when 
the  Client  refuses  to  receive  it. 
Anthony  vs.  Unangst,  174  Pa.  St.  10. 

One  who  has  given  notes  and 
judgments  in  gambling  transac- 
tions in  futures  in  wheat  and  pork 
in  Illinois  cannot  enjoin  their  col- 
lection, Smith  vs.  Kammerer,  152 
Pa.  St.  98.  Nor  compel  the  return  of 
a  promissory  note  given  to  a  Broker 
to  secure  a  balance  due  in  stock 
gambling  transactions.  Albertson 
vs.  Laughlin.  173  Pa.  St.  525. 

One  to  whom  a  Broker  has  tran.s- 
ferred  a  non-negotiable  instrument 
given  to  secure  gambling  transac- 
tions in  oil,  cannot  recover  thereon, 
although  he  paid  a  valuable  con- 
sideration. Dempsey  vs.  Harm,  20 
W.  N.  C.  266.  Margins  deposited 
with  a  banker  as  security  for  gam- 
bling transactions  in  stocks  and 
grain,  may  be  recovered  from  the 
bank  as  a  stakeholder,  when  not 
paid  over  by  the  bank  to  the  Broker. 


Dauler  vs.  Hartley,  178  Pa.  St.  22. 
When  the  intention  is  that  there  is 
to  be  no  delivery  of  stocks,  and  the 
transactions,  during  fifteen  months, 
involve  purchases  amounting  to 
over  S300,000,  the  transactions  are 
merely  wagers,  and  the  Broker  can- 
not recover.  Wagner  vs.  Hilde- 
brand,  187  Pa.  St.  136.  Xor  can 
the  customer,  in  such  gambling 
transactions  in  oil,  compel  an  ac- 
counting by  the  Broker.  Taft  vs. 
Riesenman,  7  Pa.  Dist.  Rep.  496. 
If  the  Broker  actually  buys  and 
sells  stocks,  he  does  not  gamble,  even 
although  his  principal  intended  to 
gamljle,  and  the  Broker  does  not 
deliver  the  stocks  to  the  customer  in 
person.  A  delivery  by  sale,  as  or- 
dered, is  a  sufficient  delivery. 
Young  vs.  Glendinning,  8  Pa.  Dist. 
Rep.  57,  afT'd  194  Pa.  St.  550. 
If  the  last  transaction  is  an  actual 
purchase,  and  a  settlement  is  made, 
and  the  account  closed,  it  validates 
all  prior  tran.sactions,  although  the 
latter  might  be  held  gambling  ones. 
Id.  194  Pa.  St.  550.  When  there 
was  a  bona  fide  intent  to  receive 
and  deliver,  the  tran.sactions  are 
not  illegal,  although  delivery  may 
be  postponed.  Dealing  in  stocks 
on  margins  is  not  necessarily  gam- 
bling, and,  if  even  the  transactions 
were  wagering,  the  agreement  of 
the  parties  to  make  the  sales  actual, 
will  validate  them.  Taylor's  As- 
signed Estate,  192  Pa.  St.  304,  309, 
313. 

•  L.  R.  4  Q.  B.  D.  685. 


Actions  for  Money  Laid  Ont.  571 

indemnity  against  liabilities  incurred  by  the  former  in  buy- 
ing and  selling  stocks  and  shares  upon  the  London  Stock 
Exchange  by  his  authority.  It  appeared  that  the  defend- 
ant was  a  speculator,  and  known  as  such  to  plaintiff ;  and 
that  he  (defendant)  knew  that,  in  order  to  carry  out  the 
transactions  which  he  had  employed  plaintiff  to  make,  the 
latter  would  have  to  enter  into  contracts  to  sell  or  buy  re- 
spectively, and  that  there  was  no  other  way  in  which  to 
speculate  for  defendant ;  that  the  plaintitf  did  buy  and  sell 
as  per  order ;  and  defendant  never  expected,  nor  intended 
to  accept,  actual  delivery  of  what  plaintifif  miglit  buy  for 
him,  nor  actually  deliver  what  he  migiit  sell.  For  losses 
incurred  by  such  speculations  and  commissions  the  suit 
was  instituted  by  the  Broker.  The  nuiin  defence  was  that 
the  claim  was  founded  upon  gaming  and  wagering  transac- 
tions.^ The  court,  per  Lindley,  J.,  in  delivering  the  opin- 
ion, said  :  "  The  agreement  between  the  plaintitf  and  the 
defendant  rendered  it  necessary  that  the  plaintiff  shouKl 
himself,  as  principal,  enter  into  real  contracts  of  purchase 
and  sale  with  Jobbers,  and  the  plaintiff  accordingly  did  so; 
and  in  respect  of  these  contracts  he  ineurrcd  obligations, 
for  the  non-performance  of  which  actions  could,  and  can 
now,  be  brought  against  him.  .  .  .  "What  the  plaintiff  was 
employed  to  do  was  to  buy  and  sell  on  the  Stock  E-xchan^^e, 
and  this  he  did  ;  and  everything  \\r  did  was  perfectly  legal, 
unless  it  was  rendered  illegal  as  between  the  defendant  and 
himself  by  reason  of  the  illegality  of  the  object  they  had 
in  view,  or  of  the  transactions  in  which  they  were  en^'ag«>d. 
....  In  answer  to  the  ar<rument  that  a  contract  which  is 
void  and    unenforceable  cannot  l»e  made   the  fuundalitin  of 

'8&9  Vict  <•   IW,  i  IS. 


572  Stock-brokers  and  Stock  Exchanges. 

an  implied  j)r()iiiise  to  iiKlcmiiily,  it  appears  to  me  suffi- 
cient to  say  that  an  obligation  to  iiulenmify  is  created  when- 
ever one  person  employs  another  to  do  a  lawful  act  which 
exposes  him  to  liabilit}'  ;  and  that,  in  my  view  of  the  evi- 
dence, the  defendant  did  authorize  the  plaintiff  to  incur  lia- 
bility by  buying  and  selhng  as  above  described."  Upon 
appeal  these  views  were  fully  endorsed  by  the  judges  com- 
posing the  Court  of  Appeals,  and  a  judgment  for  the  plain- 
tiff affirmed.^ 

The  case  of  Thacker  vs.  Hardy  was  subsequently  used 
by  the  court  to  sustain  its  decision  in  the  later  case  of  Ex 
parte  Rogers,^  where  it  was  held  that  where  a  person  has 
instructed  a  Broker  to  speculate  for  him  at  the  Stock  Ex- 
change, by  buying  and  selling  stocks  for  him,  with  the  in- 
tention that  he  should  only  receive  or  pay  "  differences," 
and  authorized  the  Broker  to  pay  any  losses  for  him,  the 
Broker  is  entitled  to  recover  any  sums  which  he  has  so  paid 
for  the  Client,  even  though  he  has  not  entered  into  separate 
contracts  on  his  behalf,  but  has  appropriated  to  him  parts 
of  larsrer  amounts  of  stock  Avhich  the  Broker  has  bought 
as  a  principal  with  the  view  of  dividing  them  among  dif- 
ferent Clients,  for  whom  he  has  been  instructed  to  buy.  So 
where  the  petitioner,  a  Stock-broker,  applied  under  the 
Bankruptcy  Act  to  have  respondent,  who  was  not  a  mem- 
ber of  the  Stock  Exchange,  adjudicated  a  bankrupt — the 
debt  arising  from  transactions  which  the  respondent  had 
authorized  the  petitioner  to  make  upon  the  Stock  Exchange 
— and  the  petition  was  resisted  on  the  ground  that  the  debt 
was  a  gaming  one  under  the  statute  of  Victoria,  it  was  held 

*  See  also  Rosewarne  vs.  Billing,  bers,  15  C.  B.  562;  Knight  vs.  Fitch, 
15C.  B.(n.s.)  316;  Knight  VP.  Cham-    id.  566. 

2L.  R.  15  Ch.  D.  207. 


Actions  for  Mouey  Laid  Out.  573 

that  the  petitioner  was  merely  an  agent ;  and  since  the  re- 
spondent mnst  be  taken  to  have  known  that  by  the  rules  of 
the  Stock  Exchange  the  petitioner  was  bound  to  pay  to 
members  of  the  Stock  Exchange  any  suuis  of  money  which 
might  be  due  from  the  respondent  to  them  in  regard  to  the 
transactions,  a  request  to  pay  such  sums  must  be  implied.* 

Although  the  soundness  of  the  decision  in  Thacker  vs. 
Hardy  has  been  extrajudicially  questioned  upon  the  ground 
that  all  of  the  ordinary  transactions  between  Client  and 
Broker  fall  \\-ithin  the  Gambling  Act/  it  is  submitted  that 
an  analysis  of  such  transactions  shows  that  they  are  per- 
fectly legal. 

First.  There  is  no  agreement  that  mere  differences  shall 
be  paid  jjer  se  without  anything  further  being  done  ;  but 
the  transaction  is  begun  by  an  oi-der  from  the  Client  to  buy 
or  sell  shares  of  stock,  at  a  fixed  or  market  price. 

Second.  The  Broker  is  employed  as  such.  He  is  not  a 
party  to  the  arrangement ;  neither  the  profit  nor  the  loss 
of  the  transaction  is  his.  The  Broker's  only  interest  in  the 
matter  is  to  the  extent  of  his  commission. 

Third.  That  the  transaction  thus  made  is  in  law  a  real 
one  fully  appears  from  the  note  of  the  contract  given  by 

'  Ex  parte  Godefroi,  In  re  Hart,  tion  to  "waRors,"  any  more  than  u 

Week.  Notes,  95  (1K7U).     So  in  the  contrat-t  to  pay  for  all  tlie  oil  in  a 

case  of  Marten  vs.  Gibbon,  33  L.  T.  wlialin^-ship,  altliounh  it  is  itnpossi- 

(n.  H.)  561,  the  court  lield  that  sales  l)If  t<i  tell  how  many  whaU^s  thenhip 

of    proHpcftivc    divideriflK    are    not  may  brin^  bark  (per  l{hukl)urn,  J.), 

contrary     to     law.     There     Is     no  Sec    also    two    spiritiH.!    articli-s    on 

frroimd  known  to  the  law  of  Em;-  ()[)tion   Contrartw,    ID   Cent     L.   J. 

land  agaiiLSt  a  fK'rHon  po«.HeHse<l  of  221,  211. 

property   in   railway   nhareH  Kellin;;  '  S«h!  5  Iaiw  Mag.  and  lirv.  (Ith 

the  dividends   to   arise   therefrom.  Series),    JOl,    entitle<l    "The    Local 

even  thoiitrh  the  amount  be  uniw-  Helations  betwe«'n   a  Stock -broker 

eertainixl.     Such    a    trjin.xa«'tion    is  and     his    CuHlomcr."     by     McKsrM. 

not  conlrar)-  to  the  wtututc  in  rela-  ri;;uott   fi.    Whinney,    Harristeru, 


574  Ntofk-brokers  and  Stock  Exchanges. 

tlie  Broker  to  his  Client.  This  may  contain  the  name  of 
the  purcliasing  or  selling  Jobber — sometimes  it  does,  gen- 
ei'all y  it  clues  not ;  but  it  conclusively  shows  that  the  Broker 
has  uKule  an  o[)eration  for  the  principal  with  a  tldrd  per- 
son. From  this  contract  so  made  by  the  Broker  with  the 
Jobber  there  are  evolved  legal  liabilities.  We  may  men- 
tion two  of  them  ;  1st.  If  the  Jobber  should  refuse  to  exe- 
cute the  contract  and  to  deliver  the  securities,  the  Client 
would  have  a  cause  of  action  against  him.'  2d.  But  the 
Client  would  not  have  any  cause  of  action  against  his  own 
Broker  for  any  neglect  or  refusal  of  the  Jobber.  Why  ? 
Because  the  Broker,  having  transacted  the  business  of  his 
employment  in  accordance  with  his  instructions,  is,  upon 
familiar  principles,  not  liable.^ 

Fourth.  The  fact  that  the  Broker  may  enter  into  a  con- 
tract or  contracts  for  more  than  the  specific  amount  of  stock 
ordered  to  be  bought  or  sold  by  one  Client  does  not  alter 
the  legal  status  of  the  ])arties.  If  the  Broker  act  in  good 
faith  to  his  Client,  he  is  not  debarred  from  transacting  simi- 
lar business  for  other  Clients.  Nor  does  the  fact  of  the  es- 
tablishment of  a  clearing-house,  and  the  system  of  tickets, 
enabling  him  to  balance  his  business  at  one  time,  militate 
against  the  legality  of  these  stock  transactions.  All  of 
these  things  are  mere  auxiliaries  to  the  Broker's  business, 
calculated  to  enlarge  its  volume,  and  to  enable  him  to  de- 
spatch it  with  greater  ease  and  promptness. 

Although  it  was  found  as  a  fact,  in  Thacker  vs.  Hardy, 
that  the  Client  never  expected  nor  intended  to  accept  actual 
delivery  of  what  the  Broker  might  buy  for  him,  nor  actually 
deliver  what  he  might  sell  for  him,  and   that  the  Broker 

'  See  cases  cited  in  Ch.  X.  ^  Ch.  III.  p.  220  et  seq. 


Actions  for  Money  Laid  OiiL  575 

knew  this,  yet  it  was  also  found  that  the  Client,  neverthe- 
less, knew  he  incurred  the  risk  of  having  to  accept  or  de- 
liver, but  -was  content  to  run  that  risk  in  the  expectation 
and  hope  that  the  Broker  would  be  able  so  to  arrange 
raattei-s  as  to  render  nothing  but  differences  actually  payable 
to  or  by  him,  as  the  case  might  be.  Nor  is  the  fact  that 
the  Broker  may  himself  speculate  of  any  relevancy,  so  long 
as  he  is  not  the  actual  party  who  makes  a  contract  with  his 
Client  for  the  payment  of  the  differences,  in  which  case  ho 
ceases  to  be  a  Broker,  and  becomes  a  principal.  This  risk 
of  being  obliged  to  accept  or  deliver  takes  speculative  trans- 
actions on  the  London  Stock  Exchange  out  of  the  operation 
of  the  gambling  statute,  although  it  remains  to  be  seen  what 
effect  the  Gaming  Act  of  1S92  will  have  upon  such  transac- 
tions. 

The  principle  of  the  decision  in  Thacker  vs.  Hurdy,  sitpt-o, 
■was  followed  by  the  Privy  Council  in  Forget  vs.  Ostigny,' 
where  the  facts  were  similar.  The  case  was  decided  under 
the  Canadian  statute,  which  was  substantially  equivalent  to 
the  English  statute  of  1845,  and  it  was  held  that  as  the 
Broker  was  employed  to  make  actual  contracts  on  the 
Stock  Exchange,  they  were  not  within  the  statute,  although 
the  j)rincij)al  intended  to  speculate,  and  delivery  of  the 
shares  purchased  w;ls  never  asked  for  or  tendered. 

Most  of  tlie  American  decisi(ms  follow  the  rule  laid  down 
by  the  English  courts  as  to  the  interrne<liato  charact^.'r  of 
the  Broker,  with  this  substantial  difference,  however,  that 
if  the  Br<jker  is  privy  to  the  illegality,  he  cannot  recover 
commissions  or  advances. 

In   th(!    case  of    Lehman   vs.  Strassberger -'  the  (juestiou 

'  (1895)  .\.  C   :il8.  »2    WcKxl,  (•    C.    .'i.VI.     ThiM   tl«v 


576  Stoi'k-brokers  and  Stock  Exclianc^es. 

was  fully  discussed  in  llie  Circuit  Court  oi'  the  United 
States.  In  that  case  the  plain  tiffs,  who  were  cotton-factors 
in  Asew  York,  bought  and  sold  as  such  for  the  defendant 
cotton  for  future  delivery  ;  it  being  the  understanding  be- 
tween  them  that,  in  all  sales  and  purchases  of  cotton  by 
them  for  him,  there  was  to  be  no  delivery,  but  that  differ- 
ences should  be  paid,  except  when  special  instructions  were 
given  to  receive  or  deliver  cotton.  These  contracts  were 
entered  into  by  plaintiff  according  to  the  rules  of  the  Cot- 
ton Exchange  of  New  York,  By  these  rules,  \vliich  Avere 
given  in  evidence,  an  actual  delivery  of  cotton  is  provided 
for  and  required  in  every  contract,  unless  waived  in  some 
mode  by  the  subsequent  assent  or  conduct  of  both  parties  ; 
or  unless  the  party  having  the  option  to  make  or  require  an 
actual  delivery  fails  or  declines  to  exercise  his  option  or  to 
insist  upon  delivery.  The  action  was  based  upon  a  note 
given  by  defendant  to  the  plaintiffs,  the  consideration 
arising  out  of  the  transactions  of  defendant  in  such  con- 
tracts, and  included  losses  on  contracts  paid  by  plaintiffs 
for  defendant,  and  their  commissions  for  buying  and  sell- 
ing. It  did  not  appear  that  the  names  of  the  parties  with 
whom  plaintiffs  made  the  transactions  were  disclosed  to 
the  latter.  The  defence  was  that  the  note  was  void  under 
the  statute  of  New  York  in  relation  to  gaming.  There 
was  a  verdict  below  for  the  defendant,  and  the  case  was 
reviewed  on  exceptions  to  the  charge  of  the  judge,  upon 
the  subject  of  wager  contracts. 

The  Circuit  Court  held  that,  Avhile  it  might  be  conceded 
that  contracts  for  the  future  delivery  of  cotton,  Avhen  it  is 
agreed  that   there    shall    bo   no  delivery,  but   that   differ- 

cision  was  followed  in  Hentz  vs.  Jewell,  20  Fed.  Rep.  592,  in  a  similar 
state  of  facts. 


Actions  for  Money  Laid  Out.  577 

ences  shall  be  paid,  aio  wagering  contracts,  and  void  as 
between  the  parties,  it  was  not  the  case  disclosed  in  the 
record  ;  the  parties  here  were  not  parties  to  any  contract 
for  the  sale  or  delivery  of  cotton.  The  plaintiffs  never 
sold  to  or  bought  from  the  defendant  any  cotton.  The 
parties  with  whom  the  defendant  contracted  were  pei-sons 
other  than  plaintiffs,  whose  names  were  not  disclosed,  and 
plaintiffs  were  only  factors  of  defendant  to  make  contracts 
with  other  parties,  the  plaintiffs  being  mere  agents  for  the 
defendant  in  the  transaction.  "This  is  the  case,''  said  the 
court,  "  to  put  it  in  its  strongest  light  for  the  defendant, 
of  an  agent  wlio  advances  money  to  his  principal  to  ])ay 
losses  incurred  in  an  illegal  transaction,  and  takes  his  note 
for  the  money  so  advanced.  In  such  a  case  the  contract 
between  a  principal  and  agent,  made  after  the  ihcgal 
transactions  are  closed,  although  it  may  s})riiig  from  them 
and  be  the  result  of  them,  is  a  binding  contract." ' 

The  question  lias  also  been  discussed  in  several  cases  in  the 
Supreme  Court  of  the  United  States.  In  Koundtree  vs. 
Smith,^  Brokers  in  Chicago  recovered  judgment  for  commis- 
sions and  advances  in  the  ])urchase  of  grain,  pork,  and  hiid 
for  defendant,  and  the  court,  in  affirming  the  judgment,  held 
that  tiiere  was  no  evidence  that  the  contracts  were  wag'T- 
ing  ones.  The  defendant  testified  that  he  had  no  under- 
sttinding  as  to  wliether  there  was  to  be  actual  delivery,  and 
plaintiffs  testified  that  there  was  no  siieli  understanding, 
and  nothing  was  jirove'd  of  the  intentidu  of  ihr  pai-ties  witii 
whom  j)laintiffs   contraeted.  and,  as  the   contracts   were  al- 

'  CitiriK  Durant  VH.  Hurt,  9S  Mjuw.  Spo  nlno  Tpiinnt   vh,   KHml.   I   H<>h 

167;PetrievH   Hanncy,  3  T  H    IIS;  tc    V.   3;    Farmer   vh.    Ua-wdl,    id. 

Owen  v«.  Davifi,  1  Hniif-y,  3ir,;  Ann-  290. 
Htroncr   VM    TolfT,    11    Wh.-ut     271         MOST  S  200. 
.37 


678  Stock-brokers  and  Stock  Exchanges. 

Avays  in  writing,  it  was  furtlier  held  that  evidence  that  a 
large  iiuijorit}'^  of  similar  transactions  at  the  Board  of  Trade 
in  Chicago  were  merely  difference  contracts,  was  not  suffi- 
cient to  prove  a  violation  of  the  law  in  the  transactions  in 
question.  The  court  said  that  plaintiffs  were  not  suing  on 
the  contracts,  but  for  services  performed  and  money  ad- 
vanced for  defendant,  and  although  they  might,  under  some 
circumstances,  be  so  connected  with  the  immorality  of  the 
contract  as  to  be  affected  by  it,  if  proved,  they  "were  cer- 
tainly not  in  the  same  position  as  a  party  sued  for  the  en- 
forcement of  the  original  agreement.  In  Irwin  vs.  Williar' 
the  court  reversed  a  judgment  of  the  Circuit  Court  in  favor 
of  Brokers  in  Baltimore  for  a  balance  due  to  theni  on  sales 
of  wheat  for  future  delivery  on  grounds  foreign  to  the  sub- 
ject of  this  chapter,  but,  as  the  question  of  wagering  had 
been  raised,  the  court  disposed  of  it  by  accepting  the  charge 
of  the  court  below  that,  to  void  the  contract,  the  proof  should 
show  that  the  intention  was  merely  to  settle  for  differences 
and  both  parties  so  understood  it,  but  said :  "  In  England,  it 
is  held  that  the  contracts,  although  wagers,  were  not  void  at 
common  law,  and  that  the  statute  has  not  made  them  illegal, 
but  only  non-enforceable.  Thacker  vs.  Hardy,  uhi  supra. 
While  generally,  in  this  country,  all  wagering  contracts  are 
held  to  be  illegal  and  void  as  against  public  policy,"  and 
further  "  a  Broker  might  negotiate  such  a  contract  (i.  e.  a 
wagering  one)  without  being  priv}^  to  the  illegal  intent  of 
the  principal  parties  to  it  which  renders  it  void,  and  in  such 
a  case,  being  innocent  of  any  violation  of  law,  and  not  suing 
to  enforce  an  unlawful  contract,  has  a  meritorious  ground 
for  the  recovery  of  compensation  for  services  and  advances. 

MIOU.  S.  509. 


Actions  for  Money  Laid  Out.  579 

But  "\ve  :ire  also  of  the  opinion  that  when  the  Broker  is 
privy  to  the  design  of  the  parties,  and  brings  them  together 
for  the  very  purpose  of  entering  into  an  illegal  agreement, 
he  is  jyarticejys  criminis,  anil  cannot  recover  for  services  ren- 
dered or  losses  incurred  by  himself  on  behalf  of  either  in 
forwarding  the  transaction." 

This  certainly  narrows  the  liberality  of  the  doctrine  enun- 
ciated in  Thacker  vs.  Hardy,  where  it  was  held  that  the 
Client  should  indemnify  the  Broker,  although  both  parties 
knew  that  differences  merely  were  to  be  settled,  but  it  is 
submitted  this  decision  will  not  generally  affect  transac- 
tions on  the  Stock  Exchange  where,  as  already  stated,  there 
is  a  delivery  of  the  securities  sold,  although  the  principle  of 
this  decision  was  followed  in  Stewart  vs.  Garrett,*  where, 
although  the  plaintiff  stock  and  grain  Brokers  assumed  that 
as  they  sued,  not  on  the  contracts  themselves  but  for  serv- 
ices performed  and  money  advanced,  they  did  not  stand  in 
the  same  position  as  if  seeking  to  enforce  the  original 
agreement,  the  court  held  that,  as  they  weva  jyarticrps  eriin- 
inis  to  a  gambling  transaction,  they  could  not  recover. 
In  Embrey  vs.  Jemison^  it  was  held  that  as  Brokers  em- 
ployed to  buy  cotton  in  New  York  for  future  delivery  were 
partlceps  crimims  to  the  illegal  contract  entered  into  on  be- 
half of  the  customer,  they  could  not  recover. 

In  Bibl)  vs.  Allen  ^  it  was  held  that  as  llie  lirokers  made 
future  sales  of  cotton,  understanding  that  tlu're  would  Im>  ac- 
tual delivery,  the  custouK-r  was  liable  for  advances  and 
commission.s,  although  he  meant  to  gamble  and  nothing 
more. 

'  4  All.  Kcp  390.  effect  in  Lt-linmn  vh,  Fcltl,  37  I'«l. 

» 131  U.  S.  345.  '^-p  W-'i'i;  b<jyd  vh  MiuLHoti,  II  F«l 

M49    U.    S.    Wl.     To    the   Hariu;    Kep,  174. 


580  Stock-brokers  and  Stock  Exchanges. 

The  United  States  Circuit  Court  held  in  Jackson  vs.  Foote^ 
that  the  Illinois  statute  i)r()hibiting  dealin<j  in  options  to 
buy  or  sell  at  a  future  time,  was  not  violated  by  a  time  con- 
tract to  deal  wholly  in  grain,  pork  or  lard,  for  differences, 
although  such  a  contract  might  bo  a  wager  at  commnn  law, 
and  that  notes  given  by  the  customer  to  his  Broker  in  pay- 
ment of  the  latter's  advances  and  commissions  might  be  re- 
covered by  a  third  party  avIio  was  a  hona  fide  holder  for 
value.- 

And  it  was  hold  by  the  United  States  Supreme  Court,  in 
ITiggins  vs.  ]\IcCrea,Hhat  when  grain  Hrokers  testified  that 
their  contracts  with  their  principal  were  not  made  with  in- 
tent to  wager,  but  the  principal  testified  that  he  intended 
to  gamble  merely,  and  that  the  contract  was  violative  of  the 
Chicago  statute,  the  former  may  recover  advances  and  com- 
missions, but  the  latter  cannot  counterclaim  for  margins. 
In  that  case  the  plaintiff  was  held  not  entitled  to  judgment 
on  another  ground,  viz.,  that  he  had  canceled  the  contracts 
made  by  him  without  substituting  other  principals  as  re- 
quired by  tlie  rules,  l)Ut,  if  ho  had  not  done  so,  he  could  have 
had  judgment  both  on  his  cause  of  action  and  on  the  coun- 
terclaim.^ 

'  11  Biss.  223.  fendant  principal  to  show  that  the 

*  See  also  Gilbert  vs.  Guager,  S  tran.-^actioii   was  a   gambling  one); 

Biss.    214;    Union    Nat.    Bank   vs.  Toniblin  vs.  Callan,  23  N.  W.  Rep. 

Carr,  1.5  Fed.  Rep.  438.  573  (where  the  intent  is  to  deliver, 

'116U.S.  671.  a  grain  Broker  was  held  in  Iowa 

^  See  Kirkpatrick  vs.  Adams,  20  entitled  to  recover,  although  most 

Fed.  Rep.  287;  Bartlett  vs.  Smith,  of  the  transactions  were  settled  by 

13  Fed.  Rep.  263;  Bangs  vs.  Hor-  differences). 

nick,  30  Fed.  Rep.  97;  Edwards  vs.  The  Circuit  Court  of  the  United 

Hoeffinghoff,    3S    Fed.    Rep.    635.  States   for  the   District   of   Kansas 

See  also  the  following  cases:  Ben-  held  in  Cobb  vs.  Prell,  22  Am.  Law 

nett  vs.  Covington,  22  Fed.  Rep.  Reg.  609,  that  when  the  parties  did 

816  (the  burden  of  proof  is  on  de-  not  intend  actual  delivery  of  com 


Actions  for  Money  Laid  Out.  r)Sl 

And  where  the  Client  gives  his  B  i-oker  an  order  to  purchase 
stock  for  him,  and  tlie  hitter  tU)es  so  in  accordance  with  the  in- 
struction and  the  usages  of  the  Stock  Exchange,  but  the  Ch- 
ent  subsequently  refusing  to  take  the  Stock,  the  Broker,  after 
notice,  sells  it,  the  latter  is  entitled  to  recover  the  loss  made, 
together  with  commissions,  etc. ;  and  it  is  no  defence  to  the 
action  that  the  contract  made  by  the  Broker  with  another 
member  of  the  Stock  Exchange  is  illegal,  as  being  contrary 
to  the  statute  of  Massachusetts  (declaring  sales  of  stock 
void  when  the  seller  has  no  stock  at  the  time  of  the  alleged 
sale),  especially  where  the  purchasing  Broker  is  not  shown 
to  have  known  this  fact,  or  that  the  same  was  not  legal 
under  the  Statute  of  Frauds.' 

"When  it  appeareil,  however,  that  contracts  maile  in  the 
Chicago  Board  of  Trade  were  clearly  gambling  contracts  as 
being  intended  to  be  settled  ijy  payment  of  differences  only, 

contracted   for,   but   did   intend   to  zen,    although    if    tlic    tnin.saction 

speculate  on  the  future   market,  a  took  place  in  that  State  he  could  not 

commission  merchant  could  not  re-  recover.     Ward    vs.    Vosbur^h,    31 

cover  from  his  principal  the  differ-  Fed.  Rep.  12. 

ences  the  former  wa-s  oljlijrcd  to  pay  Under  the  Georgia  statute  voiil- 
owiuK  to  his  haviii;^  contracted  to  inu;  fiamint^  contracts  (('(vlo,  Cla. 
wli  in  his  own  name.  See  note  §  3071)  a  "cotton  future"  contruct 
appended  to  this  cjLse  discu.ssiiif^  the  where  the  intention  is  nuTcIy  to 
subject,  anfl  collecting;  many  cjls««s.  .settle  difTerences,  is  void.  Waldron 
It  was  al8<j  held  in  that  ca.se,  and  in  vs.  Johnson,  SO  Fed.  Hep.  757. 
Justh  vs.  llolliday,  11  Wsush.  L.  When  the  customer's  order  (by 
Rep.  4 IS,  in  a  transaction  in  stocks,  t«'letrra|)h)  on  it,s  face  shows  tliut  an 
that  a  lirrtker  in  a  ca.s<' of  the  kind,  actual  .sale  of  stock  "sliort"  wiui 
was  to  be  considere<l  a  principal,  intendi'd,  lie  must,  Jo  prove  that  a 
and  not  an  a;;ent.  transaction  thcreun<K>r  wa.s  a  ;:an>- 
In  Illinois  an  option  us  iri  the  time  blin^;  one,  show  that  thcri'  wa.s  no 
of  delivery,  and  the  settlement  of  intent  both  of  himself  and  the  Hro- 
difTcrences  on  such  a  contract,  does  ker  to  iiuvu  an  actual  mUc  and  do- 
not  inake  it  a  wuKcriitK  one  under  livery.  Iktylo  vs.  llcnning,  121 
the  Illinois  statute,  and  an  Illinois  Fc<|.  Rop  370. 
IJrokcr  may  re<*(iver  lulvancjw  and  '  Duront  vs.  Hurt,  US  Mjiks  101. 
commissions  from  a  Wi.sconsin  citi- 


582  Stock-brokers  and  Stock  Exchanges. 

it  was  held  that  such  contracts  were  not  only  void  but  il- 
legal by  tlio  coniinon  law  of  ^lassachusetts  (which  was  the 
law  ai)plicable  to  the  case,  there  being  no  evidence  of  the 
common  law  of  Illinois),  and  that  Brokers  who  knowingly 
made  such  contracts  could  not  recover  for  advances  or 
commissions.* 

Nor  can  a  principal  recover  from  a  Stock-broker  the 
amount  of  margins  deposited,  nor  the  proceeds  of  sales  re- 
ceived by  the  latter,'^  when  no  actual  transactions  were  in- 
tended. 

In  Barnes  vs.  Smith  ^  the  rule  of  hiw  was  thus  stated.  If 
there  was  an  understanding  between  customer  and  Broker 
that  no  shares  should  be  actually  delivered,  but  that  the 
Broker  should  either  make  bargains  to  that  effect  with  the 
purchaser  or  buyer,  or  that  he  should  protect  the  customer 
from  making  or  accepting  actual  delivery,  then  the  contract 
was  illegal,  and  the  Broker  could  not  recover.  But  a  mere 
expectation  on  the  part  of  Client  and  Broker  that  tlie  pur- 
chaser would  settle  b}'  paying  or  receiving  differences  when 
there  was  no  understanding  to  that  effect,  or  that  the 
Broker  should  protect  the  Client  from  making  or  receiving 
actual  delivery,  would  not  make  the  contract  illegal,  and 
the  Broker  would  be  entitled  to  his  commissions  and  ad- 
vances. 

In  a  case  in  Kentucky*  the  Court  of  Appeals  examined 

'  Harvej'  vs.  Merrill,  150  Mass.  1.  ments  of  the  Brokers  it  appeared 

'  Xorthrup    vs.    Buffington,    171  there  was  a  tacit  ajjreement  that  no 

Mass.  468.  cotton   wa.s   to   i)e   delivered,    and 

'  159  Mass.  344.  from  the  testimony  of  the  defence 

^  SawA-er   vs.   Taggart,    14   Bu.sh  (the    principals    being    persons    of 

(Kv.),  727.     To  same  aflfect,  War-  limited  means  who  would  be  quite 

ren  vs.  Hewitt,  45  Ga.  201.     But  unable  to   pay   for  the   large   pur- 

when    from    the    character    of    the  chases  made  for  them)  the  contracts 

transactions,   and   from  the  state-  were  held  to  be  wagering  ones,  and 


Actions  for  Money  Laid  Out.  583 

the  subject  in  a  very  able  and  exhaustive  opinion,  in 
■vvliich  they  reviewed  the  entire  niethcxl  of  transacting 
business  upon  the  Cotton  and  Produce  Exchanges  of 
New  York  in  a  case  where  a  I)roker  was  directed  to 
make  operations  for  a  Client,  and  fully  sustained  their 
validity.  In  that  case  II.  6c  Co.,  commission-merchants, 
at  various  times  directed  S.  ik  Co.,  commission-merchants 
and  membei-s  of  the  New  York  Cotton  and  Produce  Ex- 
changes, to  buy  for  their  account,  for  future  delivery, 
certain  specified  (piantities  of  cotton,  pork,  and  lard. 
These  purchases,  II.  S:  Co.  knew,  were  made  on  the  Ex- 
changes, subject  to  the  rules  and  regulations  of  the  trade. 
As  the  time  aj)proached  when,  according  to  the  terms  of 
the  contracts  of  ])urchase,  the  goods  were  deliverable, 
II.  it-.  Co.  directed  the  })urchases  to  be  "  transferred  "  to 
subsequent  months.  This  was  undei-stood  and  intended  to  be 
a  direction  to  sell  the  goods,  and  purchase  a  like  (piantity  for 
delivery  in  the  months  designated,  "^riie  rules  of  the  Ex- 
changes required  that  all  crmtracts  should  he  made  in  the 
names  of  membci-s;  and,  II.  S:  Co.  not  being  members,  their 
contracts  were  made  in  the  name  of  S.  cV:  ( 'o.,  who  became 
liable  on  the  contracts  as  principals,  aiul  advaiic«'d  the 
money  necessary  to  C(^ver  the  loss.  II.  A:  Co.  failed,  and 
for  the  advances  so  juade  foi-  them,  and  hiokerage  and 
other  (fxjjen.ses,  S.  iV  Co.  made  claim  against  their  assignee. 
Payment  was  n*sisted  <jn  the  ground  that  the  transactions 
were  mere  illegal  wagers,  to  be  settled  by  the  payment  of 
"differences."  In  <'ach  instance  it  was  shown  that  S.  iV: 
Co.   eiilei-ecj    inio  agreements    with   third   pel-sons,  and   the 

the  HrokerH  not  fntitlf«<l  to  ri-rovor.  hIiow  tin'  n-.i!  imtiirc  of  tlir>  tnitm- 
.\lthou;.'li  tlm  rauirncl  wiui  in  writ-  nctioim  Hnulli>M  vn.  ,M<'Klriitl>,  3 
ine,  parol  evidence  wai  udmitted  to   S,  W.  U«'p.  l.VJ;  S.*)  Ky.  230. 


584  Stock-brokers  and  Stock  Excliaiii?os. 

transactions  were  carried  on  in  ii  manner  similar  to  the 
metliod  of  doin«»'  business  on  the  Stock  Excbanrre. 

S.  cS:  Co.  having-  thus  shown  that  they  cnlered  into  con- 
tracts vaHd  on  their  face  for  the  })urchase  of  the  goods  they 
were  dii-ected  by  II.  ct  Co.  to  buy  ;  that,  pursuant  to  direc- 
tions, they  I'csold  the  same,  and  debvered  to  the  })urcliasers 
delivery  ordeis  which  they  had  received  ;  and  that  on  such 
resales  there  were  losses,  which  they  paid — the  court  held 
that  they  made  out  a  clear  prima  facte  right  to  recover; 
tiiat  the  fact  that  some  of  the  ])ersons  with  whom  S.  k,  Co. 
made  contracts  for  purchases  had  not  the  goods  contracted 
for  on  hand  at  the  times  of  entering  into  the  contracts,  and 
that  they  had  no  reasonable  expectation  of  acquiring  them 
except  by  purchasing  in  the  market,  did  not  render  the  con- 
tracts unenforceable,  much  less  vicious.  The  court  also  held 
that  the  fact  that  the  purchaser  for  future  delivery  did  not 
intend  to  receive  and  pay  for  the  goods,  but  to  resell  them 
before  the  date  of  the  delivery,  furnisiicd  no  ground  for 
holding  that  it  was  tacitly  understood  the  contract  was  not 
to  be  performed,  and  was  to  be  settled  by  the  payment  of 
differences. 

The  court  cited,  to  sustain  this  last  proposition,  the  case  of 
Ashton  vs.  Dakin.^  In  that  case  the  plaintiff,  a  Stock-broker, 
was  directed  by  the  defendant  to  buy  for  him  certain  stock 
for  future  delivei'v,  which  was  done  through  another  Broker, 
who  made  the  contract  in  his  own  name,  and  became  liable 
for  its  performance.  Befoi-e  the  day  of  delivery  the  defend- 
ant ordered  the  stock  to  be  sold,  and  it  was  sold  at  a  loss, 
which  the  Broker  paid.  The  plaintiff  repaid  the  Broker, 
and  brought  his  action  for  the  amount.     The  defendant 

'  4  Hurl,  k  Norm.  867. 


Actions  lor  .Hoiicy   Laid  (Mit.  iySii 

pleaded  that  the  transaction  was  a  mere  wager  on  the  mar- 
ket price  of  the  stock.  The  arbitrators  found  that  the  de- 
fendant never,  in  fact,  intended  to  take  a  transfer  of  the 
stock,  and  that  the  phiintitf  was  fully  aware  of  this  when 
the  orders  were  given,  and  that  they  were  given  and  ac- 
cepted on  the  iinphed  terms  and  understanding  that  the 
plaintiff  should  not  be  called  on  by  tlie  defendant  to  deliver 
the  stock  or  any  part  thereof,  and  that  he  should  not  be 
called  on  to  receive  or  pay  for  it ;  but  that  it  should  be  re- 
sold by  the  plaintiff  before  the  time  of  payment  arrived,  and 
the  defendant  should,  on  the  resale,  either  pay  or  receive 
the  difference,  after  debiting  him  with  the  plaintiff's  charges 
on  the  purchase  and  resale.  The  court  held  that  this  was 
not  a  gaming  transaction.* 

In  the  case  of  Marshall  vs.  Thurston  ^  a  suit  was  brought 
by  a  bank  upon  notes  given  f(jr  money  advanced  by  it.  The 
defence  interposed  was,  that  the  defendant  having  been  en- 
gaged in  speculating  in  the  future  prices  of  Tennessee  State 


'  In  the  following  cases  the  de-  Ins.  Co.  vs.  Watson,  30  Fed.  Rep. 

fence  of  wager  was  sustained:  Pick-  653.     Ctuses    in    grain    dejilings    in 

ering  vs.  Cease,  79  111.  32.S;  Lyon  vs.  which  the  defence  of  wager  was  not 

Culbertson,  S3  id.  33;  Waterman  v.s.  sustained,  are,    Powell  vs.  McCord, 

Buckhin.l,   1   .Mo.  .\pp    to;  Kourke  121  111.  330;  Ware  vs.  Jordan.  2.'>  111. 

vs.  Short,  34  Kng.  L.  &  Eq.  219.    On  App.  .Wl;  Chatnplain  vs.  Smith.  Kil 

e.xamination,   however,   these  casvn  Pa.  St.   ISl.     .Mthough  tin-  Broker 

will  be  found  to  \>e  "optional  con-  hiis  a  verdict  in  his  fav«»r,  (ho  judg- 

tracts"  in  an  ille-ial  .sense,  i.  e.  spec-  meiit  thereon   will  he  reverse*!,  and 

ulatiotLS  in  the  differences  of  market  the   cjise    remand<>«l    liy    rejwon   of 

values,  the  seller  having  the  privi-  erroneous    in.st ructions.     Paniridgo 

lege  of  delivering  or  not  delivering,  vs.  Cutler,  WW  III    .VM;    Hiebo  v». 

and  the  buyer  the  privileire  of  call-  Hellman,  09  111.  .\pp    22. 
ing  or  not  calling   for  the  subject-        '  Su|»reme  Ct.  of  Tenn  ;  rp|><jrted 

matter  of  the  contrart,  as  they  saw  in    H»   Cent.    !<.    .1.    212.     S««e   aUo 

fit.      In  the  following  case,  in  dejd-  Vaiiderp<M"l   vs.   Kcurns,    12   li.    U. 

ingH  in  cotton,  the  rlefence  of  wafer  Stnith,  170. 
woj)    also   HUMtuined.     .Mutu:il    Life 


586  Stoek-brokersi  aiul  Stock  Exchanges. 

bonds,  the  notes  in  suit  were  given  for  the  differences  due 
on  settlement ;  and  the  question  arose  whether  the  bank's 
furnishing  the  mone}"^  to  the  defendant  had  any  necessary 
connection  with  the  speculative  transactions  in  bonds.  The 
court,  at  the  trial,  instructed  the  jury  that  if  defendant,  in 
his  gaming  transactions,  had  sustained  losses,  "  and  the 
bank,  at  his  request,  paid  the  amount  of  such  losses,  or  if 
the  bank  paid  such  losses  without  being  requested,  and  de- 
fendant afterwards  ratified  its  action,  and  gave  his  notes  for 
the  amount  so  paid,  such  amount  can  be  recovered  of  him 
in  this  action  ;"  but  "if  the  bank  furnished  defendant  with 
money  for  the  purpose  of  enabling  him  to  engage  in  an  un- 
lawful undertaking,  it  could  not  recover  of  him  the  amount 
so  furnished."  Both  these  instructions  were  sustained  as 
unexceptionable  by  the  appellate  court.  In  response  to  the 
suggestion  that  mere  knowledge  on  the  part  of  the  bank  of 
the  intended  use  of  the  money  by  defendant  would  make  it 
an  aider  and  abettor  in  the  gambling.  Cooper,  J.,  explained 
that  the  test  in  such  cases  is  whether  the  plaintiff  requires 
any  aid  from  the  illegal  transaction  in  order  to  estabhsh  his 
claim,  or  whether  he  was  in  fact  a  participant  in  the  illegal 
transaction.  And  a  recovery  by  the  bank  was  allowed  in 
that  case,  because  no  such  participation  appeared.^ 

Since  the  enactment  in  Tennessee  of  L.  1883,  ch.  251, 
supra,  such  a  note  is  void  even  in  the  hands  of  an  innocent 
holder  for  value  before  maturity.^  It  was  held  in  the  same 
State  that  dealing  in  cotton  futures,  where  the  intention  of 
the  parties  was  that  there  should  be  no  delivery,  was  wager- 
ing, and  that  cotton  factors  could  not  recover  advances,  al- 
though they  only  acted  as  agents.^ 

»  See  also  Hatch  vs.  Douglas,  16  '  Snoddy  vs.  Rank,  88  Tenn.  .573. 
Am.  Law.  Rev.  181.  '  Beadles  v.s.  Ownby,  84  Tenn.  424. 


Actions  for  Money  Laid  Ont.  587 

This  decision  was  followed  in  Dunn  vs.  BelP  where  it 
was  held,  however,  that  any  winnings  paid  to  the  customer 
may  be  set  off  as  against  the  margin  de[X)sits.  In  Me- 
chanics' Bank  vs.  Duncan^  it  wiis  held,  in  the  same  State, 
that  notes  given  by  Stock-brokers  to  plaintiff  for  profits 
on  stock  dealings  and  margins  deposited,  could  not  be  re- 
covered, the  dealings  being  clearly  gambling  ones  without 
any  intention  to  deliver,  and  the  consideration  being  there- 
fore in  part  illegal. 

In  a  well  considered  case  in  Indiana^  where  the  authori- 
ties are  fully  reviewed,  it  Avas  held  that  commission  mer- 
chants in  grain  were  entitled  to  recover  advances  and 
commissions,  when  they  intended  in  good  faith  to  make 
delivery,  although  the  customer  only  intended  to  gaml)le. 

And  in  Fisher  vs.  Fisher  *  it  was  held  that  an  allegation 
in  an  answer  that  a  note  given  by  defendant  to  phiintiff 
Brokers  was  given  for  an  illegal  consideration,  viz.,  the 
payment  of  margins  on  wheat  that  had  never  been  de- 
livered to  defendant,  was  bail,  as  the  mere  payment  of  mar- 
gins did  not  vitiate  tlie  contract. 

In  the  State  of  Xew  York  it  was  lield  in  Karl  vs.  Howell' 
that,  notwithstanding  the  statute  against  wagering,  a  Stock- 
broker was  entitled  to  recover  the  balance  of  his  account 
with  his  Client,  even  though  he  arranged  to  settle  for  *' dif- 
ferences" only,  as  he  was  not  a  princi|>:il,  notwithstanding 
that  he  did  not  ask  for  the  usual  margin,  and  llit-reforc!  the 
wagering  act  did  not  ap[)ly. 

'  85  Tenn.  5-Hl.  S<lmuuTkl«'   vh.    Watorn,    I'i.'i   Iml. 

'  .'iT)  S.  W,  Rep.  H87.  'Ji'iF},   whon-  ii  M|MH-iilativi'  Iriiiwu-- 

*  \Vhite«i<Jes   vh.    Hunt,   U7  Iml.    tion  in  "  HoluMiiiim  outs"  w;u»  held 

191-210.  to  \n;  »if  u  ^itiiildiiiK  iiuturo. 

Ml.'l       Irifl         171.        S«f  also        »  1  I  .\hlj.  .N   ('    171. 


588  Stock-brokers  and  Slock   Ivvcliaiii^es. 

And  when  it  in)peared  that  the  Client  intended  that 
stocks  shoiiUl  be  actually  bought  by  her  Drokei's,  and  held  by 
them  subject  to  her  order  lor  sale,  and  after  they  had  been 
sold  that  (.inferences  might  be  settled,  it  was  held  in  Cun- 
ninirham  vs.  Stevenson^  that  such  a  transaction  was  not  a 
gaining  contract,  and  that  plaintilf's  action  for  conversion 
of  stock  by  the  Brokers  was  maintainable. 

In  Vischer  vs.  Bagg^  it  was  held  that  an  agreement  be- 
tween Client  and  Broker  to  buy  stock  on  joint  account, 
the  defendant  Broker  to  carry  it  until  a  sale  was  agreed  on 
between  them,  was  not  a  wagering  contract.  Expectation 
of  a  "  rise"  in  the  price  did  not  make  it  an  unlawful  one,  as 
most  people  buy  stock  with  a  view  to  selling  it  at  a  better 
price. 

In  D wight  vs.  Badgley^  it  was  held  that  when  a  cus- 
tomer positively  testified  that  it  was  understood  between 
him  and  his  Brokers  that  they  were  to  buy  and  sell  wheat 
on  options  and  settle  by  differences,  and  there  was  no 
evidence  that  plaintiff  Brokers  owned  any  grain  or  pur- 
chased any  for  deliver}'  to  the  customer,  it  was  error  to 
direct  a  verdict  for  plaintiff  as  there  was  a  question  of  fact 
for  the  jur}^  presented  by  the  evidence.  AVhen  a  com- 
plaint avers  that  there  was  no  intent  to  deliver  wheat 
in  contracts  for  future  sale  thereof,  but  that  differences 
only  were  to  be  settled,  it  sufficiently  states  a  cause  of 
action  by  a  customer  to  recovei"  mone3's  paid  to  defendant 
Brokers  in  such  transactions/ 

In  Nichols  vs.  Lumpkin^  it  appeared   that  defendant  car- 

»  20  N.  Y.  Weekly  Digest,  82.  *  Copley  vs.  Doran  &  Wri-lit  Co., 

2  21  N.  Y.  Week.  Dig.  399,  aff'd    17  N.  Y.  St.  Rep.  601. 

106  N.  Y.  674.  *  19  N.  Y.  Super.  Ct.  Rep.  88. 

'75  Hun,  174;  see  s.  c.  60  Hun, 

144. 


Actions  for  Money  Laid  Out.  589 

ried  on  a  '••  bucket  shop  "  business  in  Boston,  and  bought 
and  sold  stocks  for  plaintiff  on  margins  without  anv  actual 
delivery,  and  the  ti-ansactions  were  held  s:amblin<r  ones, 
under  the  authority  of  Irwin  vs.  W^illiar,  su^rra,^  but  that 
plaintiff  could  not  recover  the  amount  of  notes  given  to 
him  by  defendant,  as  he  should  have  disaffirmed  the  con- 
tracts, and  sued  directh'  under  the  statute. 

In  Jemison vs. Citizens'  Savings  Bank-  it  was  held  that 
cotton  Brokers  could  not  recover  for  advances  and  commis- 
sions on  future  -dealings  in  cotton,  from  a  l)ank,  as  they 
were  bound  to  know  that  its  charter  did  not  authorize  such 
dealings. 

It  was  held  in  Peck  vs.  Doran  ct  "Wright  Co.,^  that  the 
evidence  showed  that  the  contracts  made  by  plaintiff,  as 
principal,  with  defendant  grain  llrokers,  wore  wagering  ones 
within  the  statute,  as  plaintiff's  evidence  clearly  showed 
that  the  understanding  was  to  settle  differences  merely, 
and  that  no  deliveries  were  to  be  made,  and  this  although 
the  written  contracts  were  against  plaintiff,  who  was  held 
entitled  to  rec<jver  the  money  lost  by  him  upon  tln'  eon- 
tracts.  But  in  Aiiisden  vs.  Jacobs  '  it  was  held  that  such  a 
contract  is  ncjt  rendered  invali<l  by  a  secret  intention  (»f  the 
principal  to  evade  it,  unknown  to  liie  Broker. 

The  cases  of  Kenyon  vs.  {.uthr-r ''  an<l  1) wight  vs.  Badgloy,* 
however,  decided  that  evidence  of  such  intention  shoujil  Im' 
permitted  to  be  given,  as  it  might  aid  the  jury  in  discover- 
ing what  was  th«'  intention  of  the  parties;  and  in  West  vs. 
Wright'  parol  evideiu-ji  was  h<  Id  to  be  admissible  to  sbow 

'  no  r  s.  4«.w.  » 4  Supp.  los. 

»  n   Hun,  412.  •<10  Hun.  144. 

*r,7  Hum.  HVi  '  hO  Hun,  4M. 

«7.-.   H.n,    Ml. 


590  Slock-brokcrs  and  Stock  Exchanges. 

that  the  umlerstaiuling  between  the  parties  was  that  differ- 
ences only  should  be  settled.' 

When,  under  a  euj^toni  of  the  New  York  Produce  Ex- 
change and  the  Chicago  Board  of  Trade,  the  plaintid 
Brokers  canceled  their  customers'  contracts  and  substituted 
themselves  in  place  of  tlic  released  parties,  it  was  held  in 
Kent  vs.  WoodhulP  that  the  contract  was  reduced  to  a 
mere  wagering  one,  although  valid  in  its  inception.  So 
also  when  it  was  the  understanding  of  the  parties  that  there 
was  to  be  no  actual  delivery  of  coffee,  the  contract  is  a 
wagering  one,  although  made  under  the  Coffee  Exchange 
rules,  which  required  actual  deliverv.'^  And  transactions 
in  grain  and  coffee  are  not  illegal  because  the  customers 
secretly  intended  to  gamble,  when  the  Brokers  intended 
delivery.'* 

AVhen,  however,  defendant  Stock-brokers  charged  their 
customers,  who  ordered  stocks  bought,  with  the  market 
price  on  their  books,  and  in  like  manner  credited  the  market 
price  to  customers  who  ordered  stocks  sold,  and  bought  or 
sold  shares  to  equalize  the  contracts,  the  contracts  were 
gambling  ones,  and  margins  deposited  by  the  customer 
might  be  recovered.^ 

When  although  in  the  inception  of  stock   transactions 

'  See  also  Cyrus  vs.  Portnian,  1  actions,  the  burden  is  on  the  cus- 

CityCt.  Rep.  (Supp.)  1  (contract  for  tomer,  in   an  action  by  the  Broker 

the  future  dehvery  of  cotton  valid,  for  losses,  to  show  that  no  delivery 

when   made   in  good   faith).     The  was  intended  (La  Gar  vs.  Carey,  12 

illegality  of  such  a  contract  should  St.  Rep.  171,  aff'd  120  X.  Y.  647) 

be  pleaded  (lb.)  and  the  intention  ^23  J.  &  S.  311. 

of  the  parties  is  for  the  jury  (lb.  '  Mackey  vs.  Rausch,    15  N.  Y. 

and  Ball  vs.  Davis,  1  St.  Rep.  517),  Supp.  4. 

otherwise  if,  on  the  admission  of  the  *  Hentz  vs.  Miner,  IS  Supp.  880. 

parties,  the  transactions  in  stocks  ^  Smith  vs.  Xew  York  Stock  and 

are  gambling  ones  (Fleet  vs.  "Wern-  Produce  Clearing  House  Co.,  Ltd., 

berg,  2  City  Ct.  421).     In  oil  trans-  25  N.  Y.  Supp.  261. 


Actious  for  Money  Laid  Out.  691 

only  differences  were  to  be  settled,  yet  when  the  Brokei-s 
subsequently  at  the  customer's  request  actually  bought  and 
sold  stocks,  they  are  not  wagering  ones.' 

If  the  Broker  is  privy  to  a  gambling  contract  in  oil,  he 
is  a  stakeholder  within  the  Xew  York  statute  ajrainst  ffam- 
bling,  and  margins  may  be  recovered  from  him  by  the 
customer,  but  to  do  so  the  hitter  must  repudiate  the  con- 
tract and  sue  for  the  stake.^ 

"When  defendant  Stock- broker  purchased  stocks  on  the 
written  order  of  his  customer  wiio,  not  being  able  to  pay 
therefor,  left  them  with  the  Broker  as  security,  and  di- 
rected the  hitter  to  sell  them  if  they  reached  a  certain  fig- 
ure, which  they  never  did,  but  dechned  to  a  figui-e  below 
the  purchasing  price,  it  was  held,  that  the  customer  was 
not  entitled  to  a  return  of  a  deposit  left  with  the  Broker, 
on  the  ground  that  the  transaction  w^as  a  gambling  one, 
when  the  Broker  was  willing  to  deliver  the  stocks  on  being 
paid  the  Inilanco  c^f  the  purchase  money.' 

AA'hen,  however,  the  understanding  was  that  differ- 
ences only  wcic  t(^  be  settled,  money  deposited  with  the 
linjker  may  be  recovered  under  the  statute,  and  ])arol 
evidence  is  adniissiljle  to  show  what  the  undei"standing 
was.* 

An  allegation  in  a  (Iffoifc  that  |>lainfiir  Iti-okrrs  were 
dealing  in  stocks  upon  margin  <h'posited  In'  divers  ju-rsons 
who  engaged  themselves  and  plaintiffs  in  the  risk  an»l 
chance  of  a  rise  or  fall  in  the  st(K;k  market,  is  iiad,  as  not 
.stating  that  ])lainliffs  dealt  with  defendant  in  such  trans- 

'  Whitttnoro   vk.  MHlcoriison,    1(1        '  I'.L'L.'h'xtoii  vs    Huiiililr,  Jd  N    V. 

.\1>1).  N    C.  'Mi.  Sup|)   Sl'.r 

Mlorkw.KKl  VH.  Oiikfield,  2  St.  •  \V«-ht  vh.  WriKlit,  Hft  IIuii,  VM\. 
Hc-p  ^N.  Y  ).Tn. 


592  Stock-brokers  and  Stock  Kxclianges. 

actions,  and  it  was  held  in  tlie  same  case  tliat  such  transac- 
tions were  not  unlawful.' 

In  the  State  of  Maine  it  was  held  in  Dillaway  vs.  Alden^ 
that  when  a  Stock-broker  always  keeps  on  hantl  a  sufficient 
quantity  of  stock  to  make  delivery  at  any  lime  his  customer 
demands,  and  a  number  of  dealings  is  closed,  b}'  actual  deliv- 
ery of  the  stocks  representing  the  balance,  the  transactions 
are  not  gambling  within  the  statutes  of  ]\[assachusetts  or 
Maine,  when  it  is  not  shown  that  actual  delivery  was  never 
intended. 

In  New  Jersey  it  was  held  in  Flagg  vs.  Baldwin^  that 
when  it  appeared  that  in  margin  transactions  between  de- 
fendant Broker  and  plaintiffs,  it  was  never  intended  that 
the  stocks  purchased  or  sold  should  become  or  be  treated 
as  the  stocks  of  plaintiffs,  the  transactions  were  wagers 
within  the  meaning  of  the  first  section  of  the  act  to  pre- 
vent gaming,^  and  a  mortgage  given  to  secure  the  Broker 
was,  under  the  third  section  of  the  act,  void.  In  that  case 
it  appeared  the  transactions  were  enormous,  and  that  plain- 
tiffs, who  speculated  their  entire  fortune,  would  be  utterly 
unable  to  pa}-"  for  the  stocks  purchased.  Although  the 
transactions  took  place  in  Xew  York,  it  was  held  that  the 
common  law,  which  in  the  absence  of  other  proof  was 
the  law  of  that  State,  could  not  apply,  as  it  would  violate 
the  public  policy  of  the  State  of  New  Jersey  as  to  wager- 
insf.'' 


'  Ennis  vs.  Ross,  37  Misc.  Rep.  Div.  228,  where  it  was  held  that  a 

160;  74  N.  Y.  Supp.  860.  contract  made  in  Pennsylvania,  al-- 

'  88  Me.  230.  though  invalid  in  New  York,  was 

'  38  N.  J.  Eq.  219.  valid  by  the  common  law  in  the  ab- 

*  General  Stat.  vol.  2,  p.  1606.  sence  of  evidence  of  the  Pennsyl- 

*  See  Zeitner  vs.  Irwin,  25  App.  vania  statute. 


Actions  for  Money  Laid  Out.  593 

In  Pratt  vs.  Boody  ^  it  was  held  that  large  transactions 
in  stocks  on  the  New  York  Stock  Exchange  by  Brokei-s  as 
agents  for  coinjilainant's  intestate  were  valid,  where  ileliv- 
eries  were  actually  made  as  to  some  of  the  transactions,  and 
no  proof  Avas  offered  to  show  an  agreement  to  settle  by 
differences  merely. 

When  the  plaintiff  Broker's  testiraon\'  showed  that  they 
intended  actual  }mrchases  and  deliveries,  the  contract  was 
held,  in  Missoui-i,  in  the  case  of  "Williams  vs.  Tiedemann,' 
not  to  be  a  wagering  one,  although  the  i)laintiff  intendetl 
merely  to  settle  differences,  and  in  Kent  vs.  Miltenberffer,-'  in 
a  similar  state  of  facts,  viz.,  the  purchase  of  grain  by  plain- 
tiff Brokeis  for  future  delivery,  as  there  was  no  evidence 

'35  Atl.  Rep.  1113;  and  see  also  their  judgment,  although  the  con- 
In  re  Hunt,  26  Fed.  Rep.  739.  .\  tracts  were  Aalid  in  New  York 
wife  who  assicjned  to  a  Stock-Ijroker  where  made,  and  although  the  de- 
two  mortgjiges  on  her  separate  fendants  were  not  residents  of  New 
property,  and  aLso  gave  him  her  Jersey,  and  had  not  alleged  the 
promi-ssory  note  securwl  by  bond  gambling  nature  of  the  transac- 
and  mortgage  on  her  property  to  tion-s.  Minneshcimer  vs.  Doolittle, 
enable  her  husband  to  gamble  in  45  Atl.  Rep.  Gil.  And  transac- 
stocks,  may  sue  to  have  them  trans-  tion.s  in  stocks,  bj'  New  York  Bro- 
ferred  to  her  by  the  Broker's  as-  kers,  are  gambling  on(»s,  when  in  a 
signee.  Tantum  vs.  Arnold,  15  long  series  of  such  dealings  there  is 
Stew.  (.\.  J  )  GO.  no  actual  tldivery  to,  or  receipts  of 

And   where   the   transactions  are  stocks  by,   the  customer,   altliough 

clearly  gamliiing  in  futures  on  the  the    Brokers   actually    bought   and 

New  York  Cotton   Kxchaiige,  from  sold  the  stocks,  in  the  former  ci-so 

the  fact  that  the  margiii.><  furnished  there  being  actual  delivery  thereof 

were    entirely    disproportionate    to  to  them,  and  in  the  latter  cjuse  there 

the  large  amount  of  the  dealings,  being  an  actual  delivery  (either  of 

and  the  fact  that  deliveries  were  not  stock  in  their  |H)H»ossion,  or  <»f  j»ttH"k 

to  be  made  till  several  months  had  borrowi**!  for  the  purjMM+e)  by  them 

clapiMMl,    so    that    ea<h    traiwiwtion  \\  hen,  however,  in  one  transaction 

could    be    covered     by    a    counter  there  wiuh  an  actuid  deliviTv  to  the 

trarusaf'tion,  the  .\ew  .Fersey  courtJ«  ciLHfomer,  such  a  de.nliii'.;  whm  valid, 

will    not    ai«l     .\'ew    York    Brokers  Sliaq)  vs  Sl.nlker. 'ij  .\ll    Itep   ll'JO. 
who     had     obtained     a     judgment        'G  .Mo    Ajip    Hep    l'G!l 
acainst   their  principal,   to  rii..\er        '  \'\  Mo    .\pj)    Rep   .'jU3. 


594  Stock-brokers  siihI  Stock  Exchanges. 

of  an  agreement  to  settle  differences  merely,  the  contract 
was  held  valid,  although  defendant  testified  he  only  in- 
tended to  settle  by  payment  of  differences,  and  that  this 
intention  was  known  to  plaintiffs.  It  was  also  held  that 
the  burden  was  on  defendant  of  proving  tiie  invalidity  of 
the  contract,  which  was  valid  on  its  face.  The  court,  how- 
ever, reversed  a  judgment  for  plaintiffs  and  remanded  the 
case  on  the  ground  that  they  had  given  no  evidence  of  the 
average  market  value  of  wheat  on  the  day  of  settlement  in 
accordance  with  a  rule  of  the  Exchange,  and  that  the  bur- 
den was  on  them  to  do  so. 

It  was  held  in  Third  National  Bank  vs.  Tinsley^  that, 
although  a  wagering  contract  in  grain  to  settle  for  differ- 
ences only,  was  void  as  contra  bona  mores,  it  did  not  come 
within  the  gaming  statute  of  Missouri,  and  notes  given  to 
the  Broker  were  recoverable  in  the  hands  of  a  hona  fide 
holder  for  value  without  notice,  and  this  decision  was  fol- 
lowed in  Third  National  Bank  vs.  Harrison,  supra? 

When  the  intention  of  the  parties  is  that  grain  dealings 
are  to  be  settled  by  differences  only,  the  transactions  are 
void,^  and  the  Broker  cannot  enforce  recovery  on  the  ground 
that  he  was  merely  an  agent,  when  it  was  shown  that  he 
vfVi^  jmrticejys  criminis,  and  was  the  instigating  cause  of  the 
wagering  transactions.^ 

"When  the  answer  to  a  complaint  by  a  Broker  against  his 
principal  avers  that  the  contracts  to  purchase  grain  made  by 
the  Broker  with  the  unknown  vendor  were  wagering  ones, 

'  See  the  decision  cited  in  Third  317;  Ream  vs.  Hamilton,  id.  577; 

National    Bank    vs.    Harrison,    10  Van  Blarcom  vs.  Donovan,  16  Mo. 

Fed.   Rep.  249,  aff'd   11   Mo.  App.  535. 

498.  *  Ream  vs.  Hamilton,  McClean  vg, 

2  10  Fed.  Rep.  243.  Stuve,  supra. 

'  McClean  vs.  Stuvo,  15  Mo.  App. 


Actions  for  Money  Laid  Out.  595 

it  is  suflBcienl,  and  it  is  not  necessary  to  allege  that  the 
principal  intended  the  transactions  to  be  gambling  ones, 
and  the  Broker  cannot  recover  on  a  note  given  by  his 
principal.^ 

"When  there  is  no  evidence  of  intention  not  to  deliver,  the 
question  as  to  whether  transactions  in  grain  for  future  de- 
livery were  wagering  ones,  should  not  have  been  submitted 
to  the  jury/ 

When  it  is  the  understanding  not  only  between  the  prin- 
cipal and  his  Brokers,  but  also  between  the  latter  and  those 
with  whom  they  dealt  that  grain  transactions  were  merely 
to  be  settled  bv  differences  only,  the  Brokers  cannot  recover, 
distinguishing  Cockrell  vs.  Thompson,'  but  a  note  given  by 
the  principal  to  the  Broker  may  be  recovered  by  an  inno- 
cent holder  for  value  before  maturity,  as  such  a  note  is  not 
within  the  gambling  statute  rendering  notes  void  which  are 
given  for  money  or  pn^perty  won  at  games.' 

But  the  principal,  in  order  to  defeat  the  I>roker's  right  to 
recover,  must  not  only  show  that  he  intended  an  option 
deal  in  grain,  but  that  the  Broker,  and  those  with  whom 
he  dealt,  also  s(j  intended.* 

'  Buckingham  vs.   Fitch,   18  Mo.  Taylor  vs.   Penquite,  35  Mo.  .\pp. 

App.  91.  389. 

'  Cummi.skey     vs.     Williams,    20        It  \v;is  hold  in  Wright  vs.  Fonda, 

Mo.   App.   G06.  1 1   Mo.   App.   (ill,   that   whcliuT  a 

'85  Mo  713.  tranHa<.-tion   in   grain   wfu*  a   wagcf 

'Crawford    vs.   Sjx>ncer,   92    .Mo.  or  not,  wjls  for  the  jury. 
498.  When  |)rincipal  and  Hroker  both 

*  TeartdiUe    vs.    McPike,    25    .Mo.  iri^'riW  that  cotton  is  not  to  br  pur- 

.\pp.  311.      \  Broker  in  wlmat   for  chiLso<l  or  sold,  the  latter  cannot  rt»- 

future  delivery  is  entitled  to  his  ad-  cover  for  lulvancoM  or  cotninisHions. 

vances  and   cornmi.ssions,   although  Hill  vs   Johnston,  '.iS  Mo.  .Vpp    ^WS 

he  knows  that  his  princip:d  intended  In  the  liu<t  cit<-<l  cilh4>  the  court  nd- 

gambling,    unless    the    party    with  vertwl  to  the  fact  that  the  dtM-ision 

whom  the  Broker  contracted  under-  in  Crawford  vs.  SiK'Hcer,  supra,  hml 

•)too<i  the  transaction  to  be  a  wager,  taken  a  step  in  advance  of  previom* 


596  Slock-ln'okcrs  aiul  Stock  Excliaiiifos. 

Ill  the  State  of  Minnesota  it  lias  been  held  in  I^folir  vs. 
Miesen,'  that  grain  Brokers  who  know  that  their  customer 
intends  gambling  in  "  futures,"  cannot  recover  for  advances 
and  commissions,  and  the  court  may  consider  all  tlie  circum- 
stances surrounding  the  transactions  for  the  puqiose  of 
ascertaining  such  knowledge  on  the  Broker's  part. 

In  the  last  cited  case  the  contract  was  made  in  AVisconsin, 
and  the  decision  was  made  in  accordance  with  the  principles 


decisions  in  ni;ikin2;  the  ^lnderstand-  263;  Schreiner  vs.  Orr,  55  Mo.  App. 

ing  or  intent  of  the  parties  the  cir-  406. 

cumstance  which  vitiated  the  con-  But  these  decisions  must  be  con- 
tract, and  not  merely  their  iinhiwful  .sidered  as  overruled  by  the  decision 
agreement.  It  was  hold  in  Connor  in  Connor  vs.  Black,  110  Mo.  126; 
vs.  Heman,  44  Mo.  App.  346,  that  132  Mo.  150,  where  it  was  held  that 
an  instruction  by  the  court  that  if  grain  Brokers  could  not  recover, 
the  parties  mutually  agreed  and  when  the  principal  did  not  intend 
understood  that  there  was  to  l)e  no  delivery,  whether  the  Broker,  or  the 
delivery  of  wheat,  the  Broker  could  purchaser  of  the  grain  sold  by  them, 
not  recover,  was  not  erroneous,  as  knew  of  the  vendor's  intention  or 
the  word  "understood"  was  tanta-  not. 
mount  to  the  word   "intended."  When       Stock-brokers       bought 

\^'hen  a  Broker  sold  oats  in  Sep-  stocks  for  their  customer  through 
tember,  to  be  delivered  in  the  fol-  Brokers  in  New  York  city,  the  con- 
lowing  Ma}',  but,  on  the  death  of  his  tract  was  held  a  New  York  one,  and 
principal,  closed  out  the  transaction  the  presumption  being,  in  the  ab- 
in  October  at  a  lo.ss,  instead  of  wait-  sence  of  contrary  proof,  that  the 
ing  till  May,  when  the  oats  were  to  common  law  prevailed  in  New 
be  delivered,  it  was  held  in  Scott  York,  the  Brokers  were  held  en- 
^•s.  Brown,  54  Mo.  606,  that  this  titled  to  recover,  in  the  absence  of 
circumstance,  coupled  ^s-ith  the  proof  that  they  knew  that  the  cus- 
previous  dealings  of  the  parties,  tonier  intended  to  gamble.  Ed- 
Stamped  the  transaction  as  a  wager-  wards  Brokerage  Co.  vs.  Stevenson, 
ing  one.  160  Mo.  516.     Where  the  evidence 

To  make  a  contract  for  the  sale  of  is  conflicting  as  to  whether  the  Bro- 

stocks  and  commodities  invalid  un-  ker  had  such  knowledge,  its  weight 

der  the  statute  (Rev.  Stat.  §3931),  is  for  the  jury,  or  the  court,  when 

one  of  the  parties  must  not  have  in-  actinir  as  a  jury.     Id.     To  the  same 

tended  delivery,  and  such  intention  effect  is  Gaylord  vs.  Duryea,  69  S. 

must  be  known  to  the  other  partv.  W.  Rep.  607. 

Mulford   vs.  Caesar,  53   Mo.  App.  '  47  Minn.  228. 


Actions  for  Money  Laid  Out.  597 

of  the  common  law,  in  the  absence  of  proof  of  any  "Wiscon- 
sin statnte. 

And  ii\  McCarthy  vs.  Wears  Commission  Co.,^  affirm- 
ing a  verdict  for  phiintitf  customers  for  the  amount  of 
profits  on  stock  transactions  alleged  to  be  due  to  them 
by  defendant  Brokers,  it  was  alleged  that  the  burden  was 
uj)on  the  party  alleging  that  the  transactions  were  gambling 
ones  of  proving  such  allegation,  and  if  the  plaintiffs  acted 
in  good  faith,  they  might  enforce  the  contracts. 

In  ^[ississippi  it  was  hold  in  Clay  vs.  Allen  '^  that  where 
either  party  intended  deliverv  of  cotton  in  the  future,  he 
Avas  entitled  to  the  benefit  of  the  contract  whatever  might 
be  the  intention  of  the  other  party,  and  when  the  princi- 
pal alleged  that  the  contract  was  a  wagering  one,  he  should 
.prove  it.  As  the  transaction  in  this  case  occurred  prior 
to  tiie  passage  of  the  act  of  1882,  prohibiting  dealing  in 
"futures,"  the  construction  of  the  act  was  not  involved  in 
the  case. 

In  California  it  was  held  that  an  agreement  between 
Brokers  by  which  one  purchased  and  sold  stocks  for  account 
of  the  other,  advanced  money  for  the  i)Ui'poso,  and  })uid 
assessments  on  the  stock  purchased,  d'u\  not  violate  the  con- 
stitutional ])rovision  as  to  purchase  of  stocks  on  margins,'' 
but  when  the  customer  simply  i-eceives  or  pays  differences, 
and  the  Broker  holds  the  stock  bought  as  security  for  ad- 
vances, the  transactions  wci-c?  within  the  constitutional  pro- 
vision, and  the  Broker  could  not  recover  advances  or  com- 
mi.ssions,  but  th(;  custom(*r  might  recover  moneys  paid 
t(^  the  Brok<.'r,*  but  not    inten;st   thci-eon.''     Tiic   <|u<'stion 

'91  .\,  \V.  Kep.  ;i;i.  MVrdiK.rr   \ -^     H.im-tt,    KKM'iil 

'03  Mks     120.  2  Ml 

•  Kiif  z  VH   FleiHluT,  07  f'al  M  '  li;il.l\viii  vs.  Zmlif;,  lUl  Ciil.  .V.M. 


598  Stock-brokers  and  Stock  Exchanges. 

as  to  whetlior  the  constitution  lias  been  infringed  is  one  of 
fact.'  The  constitutional  pi'ovision  does  not  violate  the 
Federal  Constitution,  as  although  it  does  not  distinguish  be- 
tween legitimate  and  gambling  contracts,  it  is  none  the  less 
a  proper  police  regulation,  and  the  court,  in  construing  it, 
will  protect  lawful  transactions.^ 

When  the  principal  becomes  insolvent  and  dies,  his  right 
to  recover  margins  paid  to  Stock-brokers  under  the  con- 
stitutional provision,  survives  to  his  assignee.^ 

There  have  been  several  decisions  in  the  State  of  Geor- 
gia as  to  speculations  in  cotton  "  futures."  Such  dealings 
have  been  held  gaming  contracts  and  void.'  A  principal 
may  recover  deposits  with  a  Broker  in  illegal  grain  trans- 
actions, but  not  profits.^  But  a  demand  for  deposits 
made  in  gambling  stock  and  produce  transactions,  must 
first  be  made."  Losses  sustained  in  buying  or  selling 
"futures"  cannot  be  recovered."  A  note  given  in  illegal 
transactions  in  cotton  futures  is  void  and  cannot  be  re- 
covered.^ 

In  Maryland  the  principle  of  the  decision  in  Irwin  vs. 
Williar^  was  followed,  and  it  was  held  that  Brokers  in 
stocks  and  grain  could  not  recover  for  commissions  and  ad- 
vances in  gambling  contracts,  as  they  were  partleejys  crim- 
inis,   and  it    was  competent  for  the  plaintiff  to  give  evi- 

'  Kullmen  vs.  Simmens,  104  Cal.  ^Cunningham  vs.  Bank,  71  Ga. 

595.  400;  75  Ga.  3G6;  Walters  vs.  Comer, 

'  Parker  vs.   Otis,   130  Cal.  322,  79  Ga.  796;  5  S.  E.  Rep.  292. 

aff'd  187  U.  S.  600.  ^  Clarke  vs.  Brown,  77  Ga.  606. 

'  Rued  vs.  Cooper,  109  Cal.  682.  » Daney  vs.  Phelan,  82  Ga.  243. 

See  Maurer  vs.  King,  127  Cal.  114,  '  Lawton  vs.  Blitch,  83  Ga.  663. 

where  the  constitutional  provision  '  Benson  vs.  Warehouse  Co.,  99 

was  held  not  to  apply  to  a  condi-  Ga.  303. 

tional  delivery  of  stock  on  purchas-  "  110  U.  S.  499. 
ing  land. 


Actions  for  Money  Laid  Ont.  599 

dence  showing  the  real  nature  of  ihe  ti-ansaction.^  It  was 
also  held  in  Billino-slea  vs.  Smith'  that  a  Stock-broker 
could  not  recover  advances  when  it  was  intended  that  there 
was  to  be  no  delivery  of  stocks.  But  when  the  Broker  ac- 
tually contracts  for  the  purchase  of  stocks,  and  at  the 
Client's  request  makes  advances  to  the  purchaser,  such  ad- 
vances may  be  recovered.' 

It  has  been  held  in  Ohio  in  Ivahn  vs.  "Walton'  that  spec- 
ulations in  wheat  and  pork  for  future  delivery,  being  mere 
speculative  transactions  without  any  intention  to  actually 
deliver  the  property  and  therefoi'e  gambling  transactions, 
are  illegal  and  void.  Whether  prohibited  by  statute  or  not, 
the  customer  could  not  recover  from  his  Broker  the  amount 
paid  by  him  for  margins. 

In  Alabama  it  was  held  in  Hubbard  vs.  Say  re  ^  that  at 
common  law  (in  the  absence  of  proof  of  any  New  York 
statute  to  the  contrary)  New  York  Cotton-Brokers  could 
recover  for  advances  and  commissions  on  cotton  futures, 
when  the  principal  promised  to  pay  them,  or  allowed  the 
transactions  to  proceed.  Nor  is  it  gamljling  when  a  Cotton- 
Broker  merely,  to  oblige  his  customers,  deals,  in  their  name, 
in  cotton  futures  for  them,  with  a  Xew  York  firm," 

In  Louisiana  Cotton- l>rokers  were  held  entitled  in  Connor 
vs,  Robertson*  to  recover  for  advances  and  commissions  in 
dealings  in  cotton  for  "future"'  delivery,  when  they  pro 
ceeded  according  to  the  rules  of  the  New  Orleans  Cotton 
E.\chang(;,  which  recjuired  actual  delivery,  and  the  fact  that 
jilaintifls,  when  defendant  did  not  perforin  his  contract  by 

'  Stow.'irt  vs.  Srhall,  cr,  Md.  2S9.  »  lOf)  Ala.  MO. 

'77M(l  .")0l  * 'riioiiipsoii      vs.     Miidck)-\,     117 

»  Covcrr  VH.  Smith,  S2  Md.  5H0.  .\la    UiS. 

«46  Ohio,  ly.-i.  '  ;J7  Lu.  Aim.  814. 


000  Stock-ln'okcrs  and  Slock   Kxchsiiii^es. 

actual  ik'livei y,  })urcliasc(l  Lraiisfciable  oi'ilers  from  respon- 
sil)le  parties  for  the  same  amount  and  quality  of  cotton,  and 
delivered  same  to  their  vendees,  did  not  make  the  transac- 
tion a  \vafferin<j  one.  This  decision  was  followed  in  Gruner 
vs.  Stucken,'  where  it  was  held  that  New  York  Cotton- 
Brokers,  who  had  dealt  under  the  rules  of  the  New  York 
Cotton  Exchange,  were  entitled  to  recover  advances  and 
commissions,  although,  in  previous  transactions,  the  parties 
had  settled  differences  oidy,  the  evidence  in  the  present 
case  showing  no  such  intention. 

In  Texas  it  was  hehl  in  Drouilhet  vs.  Pinckard^  that 
dealings  in  cotton  futures  were  not  gambling  transactions 
when  the  evidence  showed  that  there  was  an  intention  to  de- 
liver, although  no  delivery  was  made,  but  sales  were  made 
by  the  Bi"oker  to  prevent  loss,  and  it  was  also  held  that  an 
agreement  to  pay  margins,  did  not  necessarily  make  the 
transaction  a  gambling  one. 

It  was  held  in  Beer  vs.  Landman'*  that  a  note  given  by  a 
principal  to  Cotton-Brokers  in  payment  of  moneys  alleged 
to  be  due  in  dealings  in  cotton  futures,  was  void,  the  evi- 
dence showing  that  there  was  no  intent  to  receive  or  de- 
liver, or  that  the  principal  knew  the  other  parties  to  the 
contracts. 

And  in  Cunningham  vs.  Fairchild^  it  was  also  held  that 
moneys  paitl  by  a  principal  to  persons  engaged  in  the  busi- 
ness of  procuring  contracts  in  cotton  "  futures,"  and  by  the 
latter  paid  to  Cotton-Brokers  to  deal  in  such  "  futures," 
without  intent  to  deliver,  could  not  be  recovered. 

When  a  contract  for  the  purchase  of  grain,  for  future  de- 


«  39  La.  Ann.  1076.  '  30  S.  W.  Rep.  64,  726. 

» 42  S.  W.  Rep.  135.  *  43  S.  W.  Rep.  32. 


Options,  Puts,  Calls,  Straddles.  601 

livery,  is  on  its  face  valid,  and  ilie  evidence  shows  that  de- 
livery was  intended,  it  was  held  in  Nebraska,  in  Morrissey 
vs.  Bromal,'  that  such  a  contract  was  not  a  gambling  one. 
But  if  the  principal  intends  to  gamble  in  wheat  futures, 
and  such  intent  is  known  to  the  Brokers,  they  cannot  re- 
cover for  advances  and  coinniissions."- 

In  Mendel  vs.  Boyd  ^  it  was  also  held  that  where  transac- 
tions in  grain  were  of  a  gambling  character,  the  Broker 
should  repay  to  a  surety  on  a  bank  cashier's  bond,  moneys 
advanced  as  margins  by  the  cashier  out  of  the  bank's  funds, 
even  though  he  was  unaware  of  the  fact  that  the  money 
belonged  to  the  bank,  but  he  was  entitled  to  credit  for  any 
sums  repaid  to  the  cashier,  which  could  be  traced  as  having 
been  received  by  the  bank. 

It  was  decided  in  the  District  of  Columbia  in  the  case  of 
Justh  vs.  IloUiday  *  that  when  neither  party  contemplated 
the  delivery  of  stocks  sold  for  future  delivery,  the  contract 
was  a  wagering  one  and  void,  although  on  its  face  it  pur- 
ported actual  delivery. 

(>'.)    '' Optiojis"   ''Puts"    ''Calls"   "Straddles"  or  '^  Spread 

Uafjles." 

Both  in  Englaml  and  the  United  States  a  laro;e  number 
(;f  transactions  in  stocks  are  madi;  tlii'ougli  the  iiislrumcn- 
tality  of  what  are  tei'med  "  option"  contracts,  and  we  have 
consequ(.MitIy  separated  that  class  of  cast's  from  the  bulk  of 

'  .'i7  .Neb.  7GG.  (lcf(!ii(iaiit    repudiutt'    (lie   ooMtract. 

»  Ito^cTH    VH.    .Marriott,    .')!>    .\<-l>.  Mcrrcll  vs.  Carver,  'Hi  N.  \V.  Rep. 

7r,'.i;  82  .\.  \V.   Uep.  21.     See  uIho  i\V.). 
SproKue  v«.  Warren.  2G  Neb.  32r»;        '91  N.  W  .  Rip.  SOU. 
Watte    VH.    WickerHham,    27    Neb.        *  2  .Matkey's  Uep.  346. 
•1."j7.      It  m  not  necessary  that  the 


602  Stock-brokers  and  Stock  Exchanges. 

decisions  in  which  the  defence  of  wagn-  luis  been  inter- 
posed, although,  as  we  shall  see,  these  "  options  ''  are  not 
treated  differently  from  other  wagering  contracts  by  the 
courts,  where  it  appears  that  they  are  mere  covers  for  gam- 
bling operations,  and  the  parties  to  them  contemplate  and 
intend  that  mere  "  differences  "  shall  be  paid. 

An  "  option,"  in  the  sense  of  the  present  work,  may  be 
explained  as  a  contract  by  which  A,  in  consideration  of  the 
})ayment  of  a  certain  sum  to  B,  acquires  the  right  or  privi- 
lege of  buying  from  or  selling  to  B  specified  securities  at 
a  fixed  price  within  a  certain  time.' 

These  options  are  of  three  kinds — viz.,  "  calls,"  "  puts," 
and  "straddles,"  or  "spread-eagles."^  A  "  call  "  gives  A 
the  option  of  calling  or  buying  from  B,  or  not,  certain  se- 
curities. A  "  put  "  gives  A  the  option  of  selling  or  deliv- 
ering to  B,  or  not,  certain  shares  of  said  securities.  A 
"  straddle,"  or  "spread-eagle,"  is  a  combination  of  a  "  put " 
and  a  "  call,''  and  secures  to  A  the  right  to  buy  of  or  sell 
to  B,  or  not,  a  certain  number  of  shares  of  specified  securi- 
ties.^ 

These  optional  contracts  are  recognized  botli  in  the  rules 
of  tiie  London'*  and  of  the  Xew  York  Stock  Exchange.^ 

Option  contracts,  or  "putting  or  receiving  stock"  (to 
use  the  words  of  the  statute),  that  is,  contracts  to  pay  or 
receive  a  certain  sum  of  money  for  the  liberty  to  deliver,  or 
not  to  deliver,  or  to  accept  or  refuse,  a  certain  quantity  of 
stock  on  a  given  day,  were  prohibited  in  England  by  the 

'  Story  vs.  Salomon,  71  N.  Y.  420;        =  Id. 
see  also  opinion  of  Van  Hoesen,  J.,        '  Id. 

in  court  below,  6  Daly  (X.  Y.),  531;        *  Rule  76,  London  Stock  Exch. 
Yerkesvs.Salomon,  llHun(X.Y.),       ^  Arts.  XXIII.  XXXI.  XXXII. 

471 ;  Harris  vs.  Tumbridge,  83  N.  Y.  Const.  N.  Y.  Stock  Exch. 
93. 


Options,  Puts,  Calls,  Straddles.  603 

first  section  of  the  Stock-jobbing  Act  (7  Geo.  II.  c.  S).^  Such 
a  coiitract  was  declared  void,  tlie  money  paid  was  recover- 
able, and  both  parties  were  subject  to  a  penalty  unless  the 
money  were  refunded.  But  this  statute  was,  as  has  been 
stated,  repealed  in  1860  by  the  23d  and  24th  Yict.  c.  28. 
The  Stock-jobbing  Act  did  not  apply  to  shares,  or  to 
foreign  stocks,  so  that  "  option  "  contracts  in  such  securi- 
ties were  not  illegal  under  the  Stock-jobbing  Act,  and,  since 
its  repeal,  option  contracts  in  stocks  are  valid.  Such  con- 
tracts have  been  held  not  to  be  of  a  gambling  nature,  but 
see  the  observation  of  liOrd  Esher  cited  in  footnote.^ 

It  is  perfectly  plain  that  in  England,  as  in  the  United 
States,  these  options  frequently  represent  real  transactions, 

'  London  Stock  Exchange  Com-  were  entitled  to  recover  the  agreed 

mission    Report,    1S78,    pp.   20-22;  sum,  and    that   it  wa.s   immaterial 

Cavanagh's  Law  of  Money  Securi-  whether  plaintiffs  should  be  deemed 

ties,   2nd   ed.    p.    532;    Stutfield's  principals  or  agents. 

"Law  of    Betting,   Time  Bargains  Mr.  Stutfield  in  his  work  on  "  Bet- 

and  Gaming,"  3 J  ed.  ting,  Time  Bargains  and  Gaming," 

'  In  Sadd  vs.  Foster,  13  T.  L.  R.  gives  his  reasons  for  the  \'iew  that 

207,     where     Stock-brokers     sued  options  are  not  in  the  nature   of 

their  principal  for  a  Ijalance  due  out  wager  contracts, 

of  a  "put  and  call  option,"  and  the  If  the  intention  of  the  parties  is  to 

defence    was    tliat     plaintiffs    had  settle    "differences,"  the    contract 

bought  the  shares  ;ls  principals  and  will  not  be  rendered   valitl  by  tlie 

not  a-s  agents,  it  w;is  jield  (per  Lord  fact  tliat  the  parties  have  the  option 

Fsher,  M.  R.)  that  plaintiffs  were  to  demand  acceptance  or  delivery 

entitled    to    recover,    as    it    was   a  of  the  shares.     Universal  Stock  E.\- 

modified    transaction    of    principal  change  vs.  Strachan,   (189G)  A.  C. 

and  agent,  and  that  plaintiffs  had  IGG;  In  re  Gieve,  (1S99)  1  Q.B.  791. 

e.\erci.sed  the  option  whidi  had  been  See  also  In  re  South  .African  Trust 

given    them.     Lord    E.sher    added,  it  Finance  Co  ,  71   L.  T.  769  (as  to 

however,    that    "For   some    reason  damages    for  breach   of   an  option 

which  he  did  not  understand  it  had  contract,  in  which  case  the  question 

been  held  that  such  a  transaction  of  gaml)ling  was  not  raisetl);  Stut- 

did    not     amount     to     gambling. "  field  on  "  Rules  of  the  Stock   Ex- 

1/ipcfl  and  Chitly,  L  J  J,  concurred  change,"  .Vi.     And  see  Ilargrcavcs 

in  affirming  the  judgment  for  plain-  vs.  I'arsons,  13  M.  &  W.  501. 
tiffs,  but   on  the  ground    th.it  they 


004  Stock-brokers  and  Stock  Exchanges. 

and  that  there  may  Ije  a  bo/ui  ji'dt'  intention  of  deliveriug  or 
receiving  stocks  wlien  tliey  are  issnod.  As  it  has  been  well 
said/  "  Let  us  suppose  a  person  who  is  possessed  of  certain 
securities  to  be  desii'ous  of  selling  if  he  could  get  a  bid,  say 
one  \)ev  cent  higlier  than  the  present  price,  and  to  be  at 
the  same  time  desirous  of  doubling  his  holding  if  he  could 
buy  at  a  price  one  per  cent  lower.  If  he  gives  his  instruc- 
tions in  this  form  to  his  Broker,  it  may  well  happen  that 
the  price  does  not  fluctuate  sufficiently  to  make  it  possible 
to  carry  out  either  transaction.  But  the  same  ])ractical  re- 
sult may  be  attained  with  certainty  bv  the  owner  of  the 
securities  taking  a  one  per  cent  price  for  the  put  and  call 
of  them,  for  the  money  thus  received  would  be,  as  it  were, 
a  reduction  of  one  per  cent  in  the  purchase  price  if  the 
security  is  put  upon  him,  and  would  equally,  as  it  were,  go 
to  increase  the  selling  price  if  it  is  called  from  him.  There 
is,  of  course,  this  difference,  that  if  the  security  is  at  pre- 
cisely the  same  price  on  the  option  day  as  on  the  day  the 
bargain  was  made,  it  may  happen  that  the  security  is 
neither  put  nor  called,  and  in  that  case  the  owner  will  have 
secured  his  one  per  cent  without  further  liability,  and  be 
in  a  position  to  repeat  the  process.  Under  such  circum- 
stances, the  option  could  not  be  said  to  be  void  as  a  wager." 

And  these  observations  are  equally  forcible  when  applied 
to  dealings  in  stock  options  in  the  United  States,  many,  if 
not  most  of  them,  being  issued  under  the  circumstances 
above  disclosed. 

In  Story  vs.  Salomon^  the  cause  of  action  was  based 
upon  what  is  known  as  a  "straddle" — i.  e.,  a  double  privi- 

»  Law  and  Customs  of  Stock  Ex-       ^  71  N.  Y.  420. 
chansje,   by  Melsheimer   and   Lau- 
rence (London,  1879),  24. 


Options,  Puts,  Calls,  Straddles.  605 

lege,  a    "  j)ut "    and    ''  Ciill "    combined,  in  the  following 

form  : 

"  New  Yokk,  May  15,  1875. 

"  For  value  received  the  bearer  may  call  on  the  undersigned  for  one 
hundred  shares  of  the  capital  stock  of  the  Western  Union  Telegraph 
Company  at  seventy-seven  and  one  half  per  cent  any  time  in  thirty 
days  from  date. 

"  Or  the  bearer  may,  at  his  option,  deliver  the  same  to  the  under- 
signed at  seventy-seven  and  one  half  per  cent  at  any  time  within  the 
period  named,  one  day's  notice  required. 

"  All  dividends  or  extra  dividends  declared  during  the  time  are  to 
go  with  the  stock  in  either  case,  and  this  instrument  is  to  be  surren- 
dered upon  the  stock  being  either  called  or  delivered. 

"  S.  X.  S." 

The  defendant  Salomon,  having  suspended  payment,  sub- 
sequently agreed  with  the  plaintiff  to  settle  with  him,  and 
thereupon  endorsed  upon  tlie  contract  "  Settled  at  market, 
seventy-two  and  three  quarters,"  which  was  the  price  of 
the  stock  on  that  day.  The  defence  was  that  the  contract 
was  in  violation  of  the  statute  against  gaming ;  but  the 
court  held,  in  the  absence  of  parol  proof  to  the  contrary, 
that  there  was  nothing  illegal  on  the  face  of  the  con- 
tract. 

One  may  pay  for  an  option  to  take  at  a  future  day,  at  a 
certain  ])rice,  a  farm,  or  article  of  personal  i)ioperty,  and 
most  contracts  for  the  purchase  or  sale  of  merchandise  at  a 
future  d;iy  are  made  with  a  view  to  the  market  price  on  the 
day  of  performance.  There  is  always  an  (^Icment  of  specu- 
lation and  uncertainty  as  to  that  ;  but  it  has  never  been 
supposed  that  there  is  any  betting  by  such  ccmtracts.  The 
court  in  such  a  case  will  not  infer  an  illegal  intent  unless 
obliged  to;  and  the  transaction,  unless  intended  as  a  nu're 
cover  for  a  b(!t  or  wager  on  the  future   price  of  the  stock,  is 


G06  Stock-brokors  and  Stock  Exchanges. 

legitimate.  If  it  had  been  shown  that  neither  party  in- 
tended to  deliver  ov  accept  the  shares,  but  merely  to  pay 
difTerences  according  to  the  rise  or  fall  of  the  market,  the 
contract  would  have  been  illegal.  But,  in  the  absence  of 
such  evidence,  upon  the  above  reasoning  the  contract  was 
sustained. 

The  later  case  of  Harris  vs.  Tumbridge^  reiterates  the 
law  concerning  stock  options.  In  that  case  the  plaintiff  en- 
tered into  a  speculation  in  stock,  purchasing  through  her 
Broker  a  straddle  contract  on  100  shares  of  Lake  Shore  at 
62|.  The  Broker  on  the  day  after  the  purchase  sold  short 
against  the  straddle.  The  result  was  a  loss  to  the  plaintifT. 
This  short  sale  was  assailed  by  the  plaintiff  as  unauthor- 
ized, negligent,  and  unskilful,  and  defended  by  the  Broker 
as  prudent  and  customary,  and  ratified  by  his  principal. 
The  questions  of  want  of  skill,  negligence,  and  authoriza- 
tion having  been  decided  against  the  Broker,  the  court,  per 
Finch,  J.,  next  attacked  the  further  argument  of  the  de- 
fendant— viz.,  that  the  transaction  was  a  gambling  one,  and 
as  such  prohibited  by  statute  :  "  The  contract  was  not  of 
necessity  a  wager  contract.  That  it  might  have  been,  does 
not  at  all  dispense  with  the  necessity  of  proving  that  it  was. 
The  evidence  now  relied  on  is  contained  in  a  description  of 
a  '  straddle '  given  by  the  witness  L.  He  describes  it  first, 
and  then  adds,  '  In  other  words,  it  is  a  bet  that  the  stock 
will  fluctuate  so  much.'  He  speaks  of  a  straddle  generally. 
He  does  not  speak  of  the  actual  transaction  between  these 
parties  at  all.  As  to  that,  there  is  no  proof  of  its  character 
as  a  mere  wager.  "We  cannot  supply  it  by  suspicion,  or  infer 
it  from  the  making  of  a  contract  not  necessarily  within  the 

prohibition." 

'  83  N.  Y.  92. 


Optious,  Puts,  (alls,  Straddles.  607 

The  form  of  the  contract,  however,  is  not  binding,  and 
does  not  decide  the  question,  because  it  would  not  be  diffi- 
cult to  make  the  contract  relating  to  a  bet  apparently  law- 
ful, while  the  intent  with  which  it  was  entered  into  would 
be  to  avoid  or  evade  the  statute ;  accordingly,  parol  evi- 
dence is  always  admissible  to  show  the  intent  of  the  parties. 
And  where  the  question  was  asked,  "  AVas  it  your  intention, 
at  the  time  those  contracts,  or  either  of  them,  "were  made, 
to  tender  or  call  for  the  stock,  or  merely  to  settle  upon  the 
difference  i  "  the  Supreme  Court  of  New  York  held  that  the 
evidence  should  have  been  admitted,  and  reversed  a  judg- 
ment on  the  ground  of  its  exclusion.^ 

It  was  held  in  Lewis  vs.  "Wilson  ^  that  to  render  optional 
contracts  for  the  future  delivery  of  stock  void,  it  should  ap- 
peal* affirmatively  that  they  were  entered  into  as  gaming 
contracts,  and  not  as  real  transactions  for  the  purchase  and 
sale  of  property. 

But  such  a  wager,  although  void  as  a  contract,  did  not 
constitute  a  crime  under  §  34:3  of  the  Xew  York  Penal 
Code,  prior  to  its  amendment  in  1SS9,''  but  under  that  sec- 
tion, as  so  amended,  a  conviction  against  the  keeper  of  a 
"  bucket  shop  "  was  sustained.' 

The  courts  of  Illinois,  in  several  cases  arising  out  of 
transactions  in  grain,  have  veiy  strongly  condemned 
"  puts "  and  "  culls,"  when  it  a|)peared  that  mere  dilfer- 
ences  were  to  be  settled  by  them,  without  any  real  deliv- 
ery or  acceptance  of  the  grain  being  contemplated  or 
intended. 

'  Yerkt-M  VH.  Salomon,  11  Hun  (N.  '  IVoplc  vs.  Todd,  fiS  lluii,  M(>. 

Y),  471.      But  Hi-i-  I'orUT  v.s.  Viets,  *  Vv<}]iU:     v.s.     Wudo,    51)    N.    Y. 

1  Hi.H.s,  177.  Supp.  SIO. 

'  .V)  Hull,  MMl,  alT'd  IJl  .N.  V.  2SJ. 


608  Stock-brokors  and  Stock  Kxclianges. 

In  AVolcott  vs.  Ileatb/  in  distinguishing  such  contracts 
from  hona  Ji<le  time  bargains,  the  court  said  :  ''  Wiiat  the 
hiw  prohibits,  and  what  is  deemed  detrimental  to  the  pub- 
lic interests,  is,  speculations  in  ditferences  in  market  values, 
called,  perha})s,  in  the  })eculiar  language  of  the  dealers, 
'puts'  and  'calls,'  which  si nn)l3Mneans  a  privilege  to  de- 
liver or  receive  the  grain  or  not,  at  the  seller's  option.  It 
is  against  such  fictitious  gambling  transactions,  we  appre- 
hend, the  penalties  of  the  law  are  levelled." 

And  in  the  subsequent  case  of  Pickering  vs.  Cease  ^  the 
court  declared  that  optional  contracts,  where  the  seller  had 
the  privilege  of  delivering  or  not  delivering,  and  the  buyer 
the  privilege  of  calling  or  not  calling  for  the  grain  just  as 
they  chose,  and  which  on  the  maturity  of  the  contract? 
were  to  be  filled  by  adjusting  the  dififerences  in  the  market 
values,  were  in  the  natuie  of  gambling  transactions,  and 
would  not  be  tolerated  by  the  law. 

And  upon  the  authority  of  these  cases,  the  same  court  ^ 
held  that  a  contract  for  the  sale  of  wheat  in  store,  to  be 
delivered  at  a  future  tinie,  which  required  the  parties  to 
put  up  margins  as  security,  and  provided  that  if  either 
party  fails  on  notice  to  put  up  further  margins,  according 
to  the  market  price,  the  other  might  treat  the  contract  as 
filled  iinmediately,  and  recover  the  difi'erence  between  the 
contract  and  market  price,  without  offering  to  perform  on 
his  part,  or  showing  an  ability  to  perform,  is  illegal  and 
void,  as  having  a  pernicious  tendency.^ 

'78  111.  433.  options,  to  be  adjusted  according  to 
'  79  111.  328.  the  differences  in  the  market  value 
^  Lyon  vs.  Culbertson,  83  111.  33.  thereof,  is  a  contract  for  a  gambling 
*  See  also  Rudolf  vs.  Winters,  7  transaction,  which  the  law  will  not 
Neb.  125,  where  the  court  holds  tolerate;  but,  upon  the  facts  report- 
that  a  contract  to  operate  in  grain  ed,  it  would  seem  very  difficult  to 


Options,  Puts,  (alls.  Straddles.  609 

The  same  question  ciiine  before  the  United  States  District 
Court  in  Illinois,  in  tlie  intei'esting  case  of  In  re  Chandler.^ 
In  that  case  C.  conceived  the  idea  of  making  a  corner  in 
oats  for  the  month  of  June  then  ensuing-,  and  with  that 
view  he  purchased  all  the  "  cash  oats  "  as  they  arrived  in 
the  market,  and  took  all  the  "  options "  offered  him  for 
June  delivery — his  purpose  being  to  own  all  the  oats  in  the 
market,  and  compel  those  who  had  sold  "  options "  for 
June  to  pay  his  price,  or,  in  other  words,  to  settle  with  him 
by  paying  such  differences  as  should  exist  between  the 
prices  at  which  he  purchased  the  options  and  the  pi-ice  he 
should  establish  for  cash  oats  on  the  last  day  of  June,  when 
the  options  matured.  In  pursuance  of  this  plan,  he  pur- 
chased between  the  loth  of  May  and  the  18th  of  June 
2,500,000  bushels  of  cash  oats — being  all,  or  substantially 
all,  the  cash  oats  in  the  mai-ket — and  also  bought  June 
"  options  "  to  the  amount  of  2,939,-100  bushels.  The  total 
amount  of  oats  in  store  in  Chicago  on  the  IStli  of  June 
was  only  2,70<>,000  bushels,  and  the  total  amount  received 
during  the  remainder  of  the  month  was  only  800,00*)  bush- 
els. As  part  of  the  machinery  of  this  corner,  C.  also  sold 
"  puts,*'  or  i)rivileges  of  delivei'ing  to  him  oats  during  the 
month  of  June,  in  the  following  fcjrm,  duly  signed  : 

"  Ileceived  of  E.  F.  ••JmO,  ia  consideratiou  of  which  wo  pivc  him,  or 
the  hoUlur  of  this  contnict,  tlio  privilege  of  deliverint;  to  us  or  uot, 
prior  to  3  o'clock  i*.  m.  of  Juno  30,  1872,  by  iiotilication  or  delivery, 
10,000  bushclH  No.  2  oats,  rej^tilar  receipts,  at  41  cents  jx  r  bushel,  in 
store;  and  if  delivered,  we  agree  to  receive  and  pay  for  iho  same  at 
the  above  price." 

The  aiMouiit  ]);ii»l  1)V  tin"  |)Urclias('r  of  llicsc  "  [itils ''  w;is  one 

BU-stuiri  the  conclu»ion  of  the  court        '  13  Am.  Law  He;;,  (n.  s.)  310. 
in  that  fiL^c. 
V.) 


610  Stock-brokers  and  Stock  Exchanges. 

half  cent  i>er  bushel.  "  Puts  "  of  this  description  were  issued 
to  the  extent  of  3,700,000  bushels.  The  market  having  heav- 
ily declined,  C.  failed,  and  before  the  time  of  the  matui-ity 
of  the  "  puts  "  the  holders  of  the  same  claimed  to  have 
made  tender  to  the  bankrupt  of  the  quantity  of  oats  called 
f(jr  by  their  contracts,  and,  the  oats  not  having  been  ac- 
cepted and  paid  for,  they  sold  them  upon  the  market  under 
the  rules  of  the  Board  of  Trade,  and  proved  their  claims 
for  the  differences.  These  claims  they  sought  to  charge 
against  the  estate  of  C,  and  his  assignee  moved  to  expunge 
them  from  the  record  on  the  ground  that  they  constituted 
mere  gambling  transactions.  The  court  found  that  all  of 
the  claimants  knew  that  C.  was  engaged  in  manipulating 
the  market  with  express  reference  to  a  "  corner  ; "  that  C. 
was  endeavoring  to  keep  the  price  up,  while  the  sellers  of 
"  options  "  and  holders  of  "  puts  "  were  endeavoring  to  break 
down  the  price ;  and  that  the  "  contracts  in  question  par- 
take of  all  the  characteristics  of  a  wager,"  and  "  that  it  was 
as  manifestly  a  bet  upon  the  future  price  of  the  grain  in 
question,  as  any  which  could  be  made  upon  the  speed  of  a 
horse  or  the  turn  of  a  card  ; ''  that  it  conclusively  appeared 
that  no  delivery  of  the  grain  was  intended  by  these  holders 
of  puts,  because  they  knew  that  C.  controlled  all  the  oats 
in  the  market  and  fixed  the  price,  and  that  their  only  ex- 
pectation of  success  depended  on  their  being  able  to  break 
the  market  before  their  time  for  delivery  had  expired.  The 
court  held  that  the  test  was — "  Did  the  parties  intend  to 
sell  on  one  side  and  buy  on  the  other  the  oats  which  pur- 
ported to  be  the  subject-matter  of  the  transaction  ?  oi-  did 
they  only  intend  to  adjust  the  differences?"  and  that  the 
evidence  was  overwhelmingly  against  the  claimants  on  this 
point.     The  court  further  held  that,  although  the  above 


options,  Tuts,  Calls,  Straddles.  Gil 

transaction  might  not  be  contraiy  to  any  statutory  law  of 
the  State  of  Illinois,  the  wagers  were,  nevertheless,  void  at 
common  law,  as  contrary  to  public  policy.  The  idea  was 
disaffirmed  that  it  was  intended  to  be  understood  that  every 
"option"  contract  or  "put'' for  the  delivery  of  grain  or 
stock  was  void  ;  but  upon  the  evidence  in  the  present  case 
it  was  established  that  the  transactions  were  bets  upon  the 
price  of  oats,  and  that  as  it  was  obvious  that  the  effect  of 
them  was  to  beget  wild  speculations,  to  derange  prices,  to 
make  prices  artificially  high  or  low,  thereby  tending  to  de- 
stroy healthy  business  and  unsettle  legitimate  commerce, 
there  can  be  no  doubt  of  their  injurious  tendency,  and  they 
should  be  held  void  as  against  public  policy.' 

Upon  a  close  examination,  these  cases  will  be  found  not 
to  conflict  with  the  cases  of  Bigelo\v  vs.  Benedict^  and 
Kirkpatrick  vs.  Bonsall,'^  heretofore  referred  to,  wlieiv,  in 
the  absence  of  extrinsic  evidence  to  show  that  they  were 
intended  as  wagers,  the  court  sustained  option  contracts  as 
legal. 

In  a  later  case'  in  Illinois,  however,  it  was  held  that  an 
option  contract  was  void  under  the  statute,  whether  it  was 
intended  to  settle  merely  for  differences  or  not,  and  r>igelow 
vs.  Benedict^  is  distinguished.  An  option  contract  to  settle 
by  differences  only,  was  void  at  common  law  as  being  a 
gambling  transaction,  but  wIktc  (lcliv(!ry  was  intended, 
such  a  contract  was  valitl  at  coiiimoii  law.  The  statute, 
however,  now  voids  such  contracts,  whether  it  is  intended 
to  settle  by  paying  difTcrenccs  or  not.* 

'See  hIho  Wutcnnaii  v.s.  liuck-  'Schneider  vs.  T\irin'r,  130  111. 
land,  1  Mo.  .\pp.  J.O.  :i«. 

'  70  N.  Y.  202.  »  70  .\.  Y.  202. 

'72  Pa   St.  ]r,F,  •  \:i()  111,  :\s,  .supm. 


612  Stock-brokers  :iii(l  Stock  Exchanges. 

It  is  well  settled  that,  in  the  abseiiee  of  statutory  pro- 
hibitions, a  huna  jide  contraet  or  time  bargain  foi'  the 
future  tlelivery  of  stocks,  gold,  or  any  commodity — as 
grain,  for  instance — is  legal,  althougli  at  the  time  the  veii- 
(hn-  has  not  the  stocks,  gold,  or  commodity  which  he 
has  agreed  to  deliver.  The  vendor  may  reasonably  expect 
io  produce  or  ac(juire  them  in  time  for  future  delivery; 
and,  while  wishing  to  make  a  market  for  them,  is  unwilling 
to  enter  into  an  absolute  obligation  to  deliver,  and  therefore 
bargains  for  an  option  which,  whik;  it  relieves  him  from 
liability,  assures  him  of  a  sale  in  case  he  is  able  to  deliver. 
And  the  purchaser  may,  in  the  same  way,  guard  himself 
against  loss  beyond  the  consideration  paid  for  the  option 
in  case  of  his  inability  to  take  the  goods.' 

We  select  from  the  huge  bulk  of  cases  that  sustain  this 
proposition  two  of  the  leading  ones  which  fully  illustrate  it. 

In  England  the  question  was  considered  in  Ilibblewhite 
vs.  McMorine.-     In  that  case  the  })laintiiT  brought  an  action 


'  Hibblewhite  vs.  McMorine,  5  M.  Musick,  SI  id.  4 15;  Cole  vs.  Milmine, 

&   W.   462    (overrulinj;:  a   contrary  88  id.  319;  Corbett  \'s.  Underwood, 

doctrine  laid  down  by  Lord  Tenter-  83  id.  32-1;  Lyon  ^■s.  Culbertson,  id. 

den  in  Bryan  vs.  Lewi.s,  Ry.  &  M.  33;  Porter  vs.  Viets,   1   Biss.   177; 

386;  see  also  Lorj-nier  vs.  Smith,  1  Clarke  vs.  Fo.ss,  7  id.  540;  Brua's 

B.  &  C.  1;  2  D.  &  R.  23);  Morti-  Appeal,  55  Pa.  St.  294;  Smith  vs. 

mer  vs.  McCallan,  6  M.  &  W.  58,  Bomier,    70    id.    325;    Noj-es    vs. 

and  9  id.  636;  Thacker  vs.  Hardy,  Spauldinjx,  27  Vt.  420;  Brown  vs. 

L.  R.  4  Q.  B.  D.  685,  688;  Ex  parte  Hall,  5  Lans.  (X.  Y.)  ISO;  Rumsey 

Pliillips  and  E.x  parte  Marnham,  2  vs.  Berry,  65  Me.  570;  Cassard  vs. 

DeG.F.  it  .1.634 ;Currie  vs.  White,  Hinman.   14  How.   (X.  Y.)  Pr.  84, 

45  X.  Y.  822;  Bi^'elow  vs.  Benedict,  aff'd  1  Bosw.  207;  Stanton  vs.  Small, 

70  id.  202;    Kingsbury  vs.  Kirwin,  3  Sandf.  230;  Mcllvaine  vs.  E.^er- 

11  J.  &  S.  (X.  Y.)  451,  aflf'd  77  id.  ton,  2  Robt.  (X.  Y.)  422;  Brown  vs. 

612;  Wolcott  vs.  Heath,  78  111.  433;  Speyer,  20  Gratt.  309;  Bartlett  va. 

Sanborn  vs.  Benedict,  id.  309;  PLx-  Smith,  13  Fed.  Rep.  265. 
ley  vs.  Boynton,  79  id.  351;  Picker-       '  5  M.  &  W.  462. 
ing  vs.  Cea.se,   id.  328;  Logan  vs. 


Options,  I»nts,  Cjills,  Straddles.  GVP> 

of  assumpsit  to  recover  damages  for  the  breach  of  a  contract 
with  defendant,  by  wliich  the  hitter  agreed  to  purchase 
from  })hiintiff  certain  shares  of  a  raib'oad  company,  "  to  be 
transferred,  delivered,  and  paid  for  on  or  before  the  1st  day 
of  March,  1839,  or  at  any  intermediate  date  that  defend- 
ant might  require  them."  The  declaration  averred  a  readi- 
ness and  offer  on  the  part  of  tlie  plaintiff  and  a  refusal 
of  defendant  to  accept  the  shares.  The  defence  pleaded 
was  that  the  jilaintiff  never  possessed  or  owned  the  shares 
in  question,  and  had  no  reasonable  expectation  of  becoming 
possessed  of  the  same  within  tlie  time  provided  for  the 
fulfilment  of  the  contract  otherwise  than  by  purchasing  the 
same  after  the  making  of  the  contract.  To  this  plea  a  de- 
murrer "was  interposed,  which  was  unanimously  sustained 
and  judgment  ordered  for  the  plaintiff.  Parke,  B.,  said  :  "  I 
cannot  see  what  principle  of  law  is  at  all  affected  by  a 
man's  beintf  aUowed  to  contract  for  the  sale  of  goods  of 
which  he  has  not  possession  at  the  time  of  the  bai*- 
gain,  and  has  no  reasonable  expectation  of  receiving."  All 
the  judges  repudiated  the  contrary  doctrine  of  Lord  Ten- 
terden.' 

Tn  New  York  the  Court  of  Appeals  ^  has  held  that  a  con- 
tract whereby  A,  for  a  valuable  consideration,  agrees  to 
purchase  of  B  gold  coin  at  a  s))ecifie(l  [)i'ic('  within  a  specilied 
time,  H  having  the  option  to  deliver  or  not,  was  not  invalid 
on  its  face.  By  the  C(jntract  the  defendant  Ijound  liiinself 
to  take  the  gold  if  delivered  within  the  time  specilied  at  the 
|)rice  named,  and  he  ran  the  hazard  of  loss  in  case  the  markc^t 
price;  of  gold  should  be  more  than  ten  per  cent  less,  at  the 
time  specified  for  the  delivery,  than    the  price  he  agreed  to 

'III  Hrviiii  VH  I.fwiH  unci  Lury-  '  Hi^eluw  vs.  IJciicdict,  70  .\.  \'. 
mcrr  VH    Smith,  Hii|)rii.  'JO'J. 


014  Stock-brokers  and  Stock  Exchanges. 

}Kiy.  That  tliciv  was  an  element  f)f  hazard  in  the  contract 
is  plain  ;  bnt  the  same  hazard  is  incnrred  in  every  optional 
contract  for  the  sale  of  any  marketable  commodity,  when 
for  a  consideration  paid  one  of  the  parties  binds  himself  Ui 
sell  or  receive  the  property  at  a  fnture  time  at  a  specified 
price,  at  the  election  of  the  other.  The  contract  in  the  case 
in  question  Avas  attacked  on  the  ground  that  it  was  a  wager 
within  the  statute  of  New  York,  and  in  that  respect  it  dif- 
fers from  Ilibblewhite  vs.  McMorine. 

The  principle  of  these  cases  is  fully  sustained  in  all  of  the 
other  States,  and  particular  allusion  has  been  made  under 
the  foregoing  subdivisions  to  such  of  them  as  were  deemed 
important. 

In  fine,  "  options  "  stand  on  the  same  footing  as  any  other 
species  of  contract.  Where  it  appears  that  the  intention  of 
the  parties  is  to  contract  for  the  payment  of  "  differences  " 
merely,  and  not  to  deliver  or  accept  stock,  the  law  pro- 
nounces it  a  wager,  irrespective  of  the  form  used  to  cover 
the  transaction  ;  but,  on  the  other  hand,  where  there  is  a 
honafide  intention  to  deliver  or  receive  property,  the  agree- 
ment Avill  be  sustained. 

In  Illinois,  however,  as  we  have  seen  (Schneider  vs. 
Turner,  snjpra)^  these  contracts  have,  under  the  statute  of 
that  state,  been  declared  void,  whether  it  is  intended  to  have 
delivery  or  not.  And  in  Xebraska,  such  option  contracts 
have  been  declared  gambling  transactions  (Rudolf  vs. 
Winters,  supra).  "Whether  the  sweeping  provision  of  the 
Calif ornian  constitution,  supra,  includes  such  contracts,  has 
not  been  decided.^ 

'In  a  recent  case  in  Missouri  the  sale  of  a  "put"  was  illegal, 
(Lane  vs.  Logan  Grain  Co.,  7ns.  W.  under  the  statute,  the  evidence 
722),  the  court,  whilst  holding  that    showing  tliat  no  delivery  was  in- 


Conspiracies  to  Affect  Stocks.  filo 

i^f'.)    '•  Conspiraci/"  tn  Affect   Storks,  I'tr.;   "  Poofs,"   "  Corners," 
"  Rig(jing  the  Market." 

1.  Conspiracies. — At  common  law  there  were  three  crimi- 
nal offences  against  public  trade,  which  were  distinctly 
known  as  "•  foi-estalling,"  "  regrating,"  and  "  engrossing." 

"  Forestalling  "  was  defined  by  statute  5  and  0  Edw.  YI. 
c.  li,  to  be  the  buying  or  contracting  for  any  merchandise 
or  victual  coming  in  the  way  to  market,  or  dissuading  per- 
sons from  bringing  their  goods  or  provisions  there,  or  per- 
suading them  to  enhance  the  price  when  there — any  of 
which  practices  makes  the  market  dearer  to  the  fair  trader.' 

"  Regrating,-'  by  the  same  statute,  was  described  to  be 
the  buying  of  corn  or  other  dead  victual  in  any  market,  and 
sellini;  it  aj^ain  in  the  same  market,  or  within  four  miles  of 
the  place.  This  also  enhances  the  price  of  the  provisions, 
as  every  successive  seller  must  liave  a  successive  profit.'^ 

"Engrossing''  was  the  getting  into  one's  possession  or 
buying  up  large  quantities  of  corn  or  other  dead  victual, 
with  intent  to  sell  them  again.  This  was  considered  to  be 
injurious  to  the  public  by  putting  it  in  the  ])ower  of  one  or 
two  rich  men  to  raise  the  [)rice  of  provisions  at  th(Mr  own 
discretion.  And  the  total  engrossing  ot"  any  other  com- 
modity, with  an  intent  to  sell  it  at  an  unreasonable  price, 
is  an  offence  indictable  and  finable  at  common  law.^  The 
penalty  for  tliese  misdemeanors  by  the  common  law  was 
discretionary  line  and  iin|)iisoiinu'nt. 

Under  the  head  of  "  Monopolies,"  in  asubs('(|n<Mit  chapter 
<;f  the  same  statute,  combinations  :unon<r  victuailei's  or  ai'- 

tfn<l«?<J,   would    uIko  Hoom   to   liold  '  I     iJlack.    Coin.    (Slmrsw.    cd.) 

tluit  sucli  u  coiitnict  In  void  ah  initio,  I  oS. 

aa  "  thoro  could  l>c  no  intention  to  '  Id. 

deliver,  when  lh«T<r  in  un  option  of  '  Id. 
thiM  Hort." 


616  Stock-brokors  and  Stork  Exchanges. 

tificers  to  raiso  tlie  \mce  of  provisions  (»i'  any  other  coin- 
niodities,  or  the  rate  of  hibor,  were  punishable  as  misde- 
meanors. 

The  statutes  concerning  the  above  offences  were  repealed 
by  12  Geo.  III.  c.  71,  and  by  7  and  8  Yict.  c.  2-1,  the  law  of 
engrossing  or  regrating  was  abolished.^ 

The  effect  of  the  repeal  of  those  statutes  was  not,  hoAv- 
ever,  to  render  transactions  such  as  above  defined  legal. 
On  the  contrary,  many  of  the  acts  embraced  in  these  stat- 
utes were,  and  still  are,  illegal  and  criminal  at  common  law.^ 
But  it  is  a  question,  not  free  from  dilficulty,  as  to  the  ex- 

'  Mr.  Wharton,  in  his  excellent  public  crime.  In  tlie  exposition  of 
treatise  on  Criminal  Law  (10th  ed.  the  law  we  are  told  that  lege  Jul.  de 
vol.  ii.  §  1849),  ficives  the  following  ann.  poena  statuitur  adversus  eum  qui 
historj'  of  these  misdemeanors:  contra  annonam  fecerit  societatemve 
"Tliese  offences  are  taken  from  the  coierit,  quo  annona  carior  fiat;  and 
Roman  law.  The  Roman  title  is  by  the  first  section  a  penalty  is  im- 
'Dardanariatus,' and  consists  in  the  posed  on  interference  with  trans- 
artificial  production  of  dearness  and  portaUon,  or  in  any  way  preventing 
scarcity  in  any  market  staple  (ne  the  free  carriage  of  grain:  Eadem 
dardanarii  xdlius  mercis  sinf),  but  lege  continetur,  ne  quis  navem  nau- 
especially  of  grain.  Popular  feeling  tamre  retineat  aul  dolo  ne  faciaf,  quo 
Avas  then,  as  it  has  been  often  since,  jnagi.t  dctincatur.  Still  sharper 
aroused  against  the  monopolizers  or  edicts  followed,  of  which  I'lpian 
hoarders  of  food.  The  ^Ediles  were  mentions  one:  A'e  aut  ah  his:  qui 
vested  with  jurisdiction  to  repress  coemlas  merces  supprimunt  [pur- 
such  offences;  and  Plautus  illus-  chixsers]  aut  a  locupletioribus  {hoard- 
trates  the  process  of  prosecution  be-  ers  of  their  own  produce]  annona 
fore  them  in  a  passage  where  the  oneratus.  Zeno  issued  a  special 
Parasite  calls  for  proceedings  statute  against  monopolizers  who, 
against  those  qui  consilium  iniere  to  create  an  artificial  scarcitj',  buy 
[something  like  our  own  conspira-  up  all  a  necessary  staple,  in  order 
cies  to  raise  prices]  quo  nos  rictu  et  subsequently  to  sell  at  their  own 
xnta  prohibcant.  So  Livy  tells  us  of  price.  Such  ofTenders,  on  convic- 
a  fine  imposed  upon  frumentarii  ob  tion,  were  to  be  sentenced  to  con- 
annonam  compressum.  The  pro-  fiscation  of  goods  and  to  bani.sh- 
ceedings  allowed  in  such  cases  took  ment." 

definite  shape   in   the  famous   Lex        ^  Raymond  vs.  Leavitt,  Sup.  Ct. 

Julia  de  Annona,  which  declared  the  of  Mich.  13  Cent.  L.  J.  110. 
usurious  hoarding  of  grain  to  be  a 


Conspiracies  to  Affect  Stocks.  617 

tent  the  old  coininon-l;i\v  principles  in  this  respect  should  be 
a})plied  to  the  present  methods  of  transacting  business.  A 
most  cursory  perusal  of  the  definitions  of  "  forestalling," 
"  regrating,"  and  "engrossing"  will  show  that  if  they  were 
enforced  at  the  present  day  the  commercial  interests  of  the 
world  would  be  seriously  curtailed  and  impeded  ;  and  there 
is  no  doubt  that  many  of  the  old  doctrines  have  been  prac- 
tically abrogated.' 

In  England  it  was  held  that  the  common-law  offence 
of  engrossing  applied  only  with  respect  to  the  neces- 
saries of  life;^  and  it  is  very  evident  that  these  statutes 
did  not  embrace,  and  were  not  intended  to  apply  to,  deal- 
ings in  securities  or  stocks,  for  the  very  obvious  reason  that 
the  latter  description  of  property  did  not  come  into  exist- 
ence in  England  until  many  years  after  they  were  passed  ; 
but,  as  we  shall  see,  the  comprehensive  and  elastic  principles 
of  the  common  law  upon  the  subject  of  illegal  conspiracies 
have  practically  kei>t  alive  the  spirit  of  these  old  statutes,  and 
furnished  remedies  sufficiently  adequate  to  prevent  combi- 
nations in  this  new  species  of  property  when  they  threatened 
the  public  property,  trade,  or  commerce. 

The  modern  rule,  tlien,  would  seem  to  be  this :  that  the 
offences  of  "  refri-atinfj:,"  "  forcstallin<>:,"  and  "  enj!:rossin<):," 
as  they  were  defined  under  the  statutes  of  Edward,  no  longer 
e.xist  (unless  revived  by  express  legislation)  either  in  Eng- 
land or  in  tliis  country,  so  fai*  as  Individual  action  or  prop- 

'  Raymond    vs.    Loavift,    supra;  whether  t  lie  offence  of  rcfiratiiifxevor 

Story  on  Sales,  (i-17;   Henjainin  on  existed  at  eoninion  law.     Spo  also 

Personal    Property,    111    i\'><i:\);    2  \  Harv    L.  Kev.  128. 

Whart.  Cr.  Law  MOlh  ed  ),   §  lsr>()  '  Pettaini)erdass  vs.  Thaekoorsey- 

und  note  H).  dims.  .'•  Moo    Tnd    .\pp    10'.);  7  Moo. 

TTifi    writpr    of    an    artielo    in    :i  P.  C.  C.  'I'M;  15  Jur.  257. 
Polif  i«al  Sei,  Quart  . 502,  50S.  d<.ul)l.s 


618  Stock-brokers  and  Stock  K\chiiuges. 

erty  is  concerned  ;  but  in  i)lace  thereof  tlie  common  law  de- 
clares that  combinations  or  conspiracies  by  several  pei'sons 
to  engross  or  absorb  an\'  particular  necessary  staple  of  life, 
to  the  detriment  of  the  public,  are  illegal  and  the  subject  of 
indictment.^ 

The  case  of  Rex  vs.  Waddington  ^  illustrates  this  proposi- 
tion, it  being  there  held  that  the  spreading  of  rumors  with 
intent  to  enhance  the  price  of  hops,  in  the  hearing  of  hop- 
planters,  dealers,  and  others,  that  the  stock  of  hops  Avas 
nearly  exhausted,  and  that  there  would  be  a  scarcity  of  hops, 
with  intent  to  induce  them  not  to  bring  their  hops  to  market 
for  a  long  time,  and  thereby  greatly  to  enhance  the  price, 
constituted  the  offence  of  "ingrossing"  (engrossing),  at 
common  law,  notwithstanding  the  repeal  of  5  &  6  Edw. 
YI.  c.  14  by  12  Geo.  III.  c,  71.  Although  this  case  has 
been  severely  criticized,  it  has  not,  it  seems,  been  directly 
overruled.^  And,  as  W(3  have  intimated,  the  general  rule 
has  been  extended  to  embrace  combinations  or  C(mspiracies 
to  affect  the  price  or  market  for  stocks  and  government 
securities. 

'  See  authorities  heretofore  cited  Hawarden  vs.  Coal  Co.,  55  L.  R.  A. 

under  this  subdivision,  and  consult  82S  (coal  combination  illegal);  Peo- 

al.so,  in  this  connection,  the  interest-  pie  vs.  Milk  Exchange,  27  L.  R.  A. 

ing  case  of  In  re  Chandler,  13  Am.  437. 

Law  Reg.  (n.  s.)  310;  s.  c.  6  Biss.  C.  It  has  been  decided  by  the  Eng- 
C.  53,  sub  nom.  Ex  parte  Yovmg.  Ii.sh  Privj-  Council  that  the  law  of 
See  also  Raj'  on  "Contractual  Limi-  the  Colony  of  Natal  does  not  make 
tations"  and  cases  therein  cited;  it  illegal  for  any  person  or  any  body 
Eddy  on  "  Combinations  "  and  cases  of  persons  to  buy  shares  with  a  view 
cited.  And  see  United  States  vs.  to  selling  them  at  a  profit.  Laugh- 
Knight  Co.,  156  U.  S.  1  (purchase  of  ton  vs.  Griffin,  (1S95)  App.  Ca-s.  104. 
sugar  refineries  not  in  restraint  of  -  1  East,  143-160. 
commerce);  Ertz  vs.  Produce  Ex-  '  See  1  Bish.  Cr.  Law,  §§  527,  528, 
change,  51  L.  R.  A.  825  (Produce  and  notes  to  7th  ed.;  Raymond  vs. 
Exchange  of  Minneapolis  held  to  be  Leavitt,  Sup.  Ct.  Mich.  13  Cent.  L. 
a  combination  in  restraint  of  trade) ;  J.  110. 


Conspiracies  to  Affect  Stocks.  619 

This  was  held  in  the  celebrated  case  of  the  King  vs.  De 
Berenger  and  othei's.'  In  that  case  De  Berenger  and  seven 
others  were  tried  and  convicted  of  conspiracy  in  disseminat- 
ing false  reports  and  rumors  that  a  peace  would  soon  be  made 
between  England  and  France,  and  that  Napoleon  Bonaparte 
was  dead,  thereby  attempting  to  occasion,  without  any  just 
or  true  cause,  a  great  increase  and  rise  of  the  public  govern- 
ment funds  and  securities,  to  the  injury  and  damage  of  the 
subjects  of  the  king,  who  should,  on  a  certain  day,  purchase 
and  buy  such  securities.  The  defendants  moved  an  arrest  of 
judgment  upon  several  grounds :  intei'  alia,  that  no  crime 
known  to  the  law  had  been  committed ;  that  no  adjudged  case 
of  conspiracy  had  gone  as  far  as  this ;  and  that,  if  it  were  not 
a  crime  in  itself  to  raise  the  price  of  government  funds,  a 
conspiracy  to  do  so  would  not  l)e  illegal  unless  some  collat- 
eral object  were  stated  to  give  it  a  criminal  character.  Lord 
Ellenborough,  C.  J.,  in  an  oj)inion,  the  doctrine  of  which 
was  endorsed  bv  all  of  the  judges,  overruled  all  of  the  grounds 
relied  on,  holding  that  the  conspiracy  was  by  false  rumors 
to  raise  the  public  funds  and  securities.  The  crime  lay  in 
the  act  of  conspirac}'  and  combination  to  effect  that  purpose, 
and  it  would  have  been  complete  although  it  had  not  been 
})Ui^ued  to  its  consequences,  or  the  parties  had  not  been  able 
to  carry  it  into  effect.  The  purpose  of  such  a  conspiracy  is 
itself  mischiev(^us,  as  it  strikes  at  tht'  pric(;  of  a  vendible 
commodity  in  the  market,  and,  if  it  gives  it  a  fictitious  price 
by  means  of  false  rumors,  it  is  a  fraud  levelled  against  all 
the  public,  being  against  all  such  as  may  possibly  have  anv- 
thing  to  do  with  the  funds  on  that  |)articular  day.  While 
the  raising  or  lowering  of  ihr  pulilic  I'liiids  is  not  yw  *t' a 

'  :{  M.iM    A-  S    (17. 


620  Stock-ln'okiTs  :iimI  Slock   ExcliJiiiKos. 

crimo — foi-  a  man  may  have  occasion  toscll  outalarge  sum, 
wliicli  may  have  tho  effect  of  depressing  the  price  of  stocks, 
or  may  l)uy  in  a  large  sum  and  thereby  raise  the  ])rice  on  a 
l)articuhir  day — yet  the  conspiracy  by  a  nundjer  of  persons 
to  raise  the  funds  on  a  particuhir  day  is  an  offence  preju- 
dicial to  a  certain  class  of  subjects.' 

This  case  was  directly  approved  by  the  English  courts  in 
1S7<)  in  Reg.  vs.  Aspinall,*  where  it  was  held  that  a  con- 
s[)iracy  to  procure,  by  fraud  and  falsehood,  the  sliares  of  a 
compan}^  to  be  quoted  in  the  official  list,  and  thus  give  a 
fictitious  value  to  the  shares  beyond  what  they  wouM 
otherwise  bring  in  the  market,  is  a  fraud  upon  tiie  public, 
and  an  indictable  offence.  In  that  case  the  indictment  al- 
leged that  the  defendants  were  promoters  of  the  E.  Com- 
pany, Limited,  and  that  ai)plicati()n  had  been  made,  on  be- 
half of  the  company,  to  the  Committee  for  General  Purposes 
of  the  Stock  Exchange  to  order  tho  quotation  of  the  com- 
pany in  the  official  list  of  the  Stock  Exchange,  under  the 
129th  Rule,  to  the  effect  that  the  committee  would  order 
the  quotation  of  a  new  company  in  the  official  list,  })rovided 
that  the  company  was  of  honafide  character,  etc. ;  that  the 
requirements  of  Rule  128  had  been  complied  with,  requir- 
ing the  production  of  documents,  etc.,  and  list  of  allottees, 
etc. ;  that  two  thirds  of  the  whole  nominal  capital  proposed 
to  be  issued  had  l)een  applied  for  and  unconditionally  al- 
lotted to  the  public;  and  that  a  member  of  the  Stock  Ex- 
change was  authorized  by  tiie  compan v  to  give  full  infocma- 
tion  as  to  the  formation   of  the  undertaking,  and  able  to 

'  See  also  Rex  vs.  Gumey,  11  Cox  ^  L.  R.  1  Q.  B.  D.  730;  aff'd  2  id. 

C.  C.  414.     So  a  combination  to  fix  48.     See  also  Rex  vs.  Mott,  2  Cas. 

the  price  of  salt  is  unlawful  (Rex  vs.  &  P.  521.    " 
Norris,  2  Ld.  Ken.  300). 


Conspiracies  to  AftVct  Slocks.  621 

satisfy  the  coiiiinittee  as  lo  all  particulars  they  shoukl  re- 
quire. It.  was  also  averred  that  defendants  requested  a 
linn  of  Stock-brokei'S  to  give  the  information  before  men- 
tioned and  to  apply  to  the  committee  to  order  the  quota- 
tion of  the  shares  of  the  company  in  the  official  list,  and 
employed  the  Brokers  to  sell  5000  shares  of  the  company 
on  behalf  of  alleged  vendors  of  patents  ;  and  that  defendants 
unlawfully  conspired  and  agreed,  by  divers  false  pretences, 
to  injure  and  deceive  the  committee,  and  to  induce  them, 
contrary  to  the  true  intent  and  meaning  of  the  rules  of  the 
Exchange,  to  order  a  quotation  of  the  shares  of  the  com- 
pany in  the  official  list  of  the  Stock  Exchange,  to  induce 
persons  who  should  Ijuy  and  sell  the  shares  to  believe  that 
the  company  was  duly  formed  and  constituted,  and  luid,  in 
all  respects,  complied  willi  the  rules  of  the  Stock  Exchange, 
so  as  to  entitle  the  company  to  have  their  shares  quoted 
in  the  official  list;  and  that  defendants  in  pursuance  of  the 
conspiracy,  falsely  pretended  to  Z.  and  other  members  of  the 
committee  that  the  number  of  shares  applied  for  Ijy  the 
public  was  34,;305,  and  that  the  amount  received  thereon, 
at  10.y.  per  share,  was  i:  17,282,  and  that  15,000  had  been 
alhjtted  to  the  patentee,  and  that  no  shares  had  been  con- 
ditionally allotted,  and  thereby  induced  the  committee  to 
order  the  shares  to  Ije  quoted  in  the  official  list. 

Upon  a  motifjn  in  ai-rest  (jfjudgnjent, after  conviction,  the 
Court  of  Queen's  IJencii  heUl  that  this  count  was  sufficient, 
and  the  case  had  been  fully  made  out  against  the  defend- 
ants. The  Court  of  A]»j)eals  allirnu'd  this  judgment.  The 
court  held  that,  as  tlnj  rides  of  a  public  body  of  sui-h 
celebrity  jus  tin;  London  Stock  |"].\eliange  must  be  w  idely 
known  to  Br«»I<ers  and  others  dealing  in  shares,  it  was  plain 
that  to  obtain  a  (juotatiori  of  their  shares  in  tile  official  list 


622  Sto('k-]>r()kors  aiul  Stock   Exchanges. 

must  be  advantageous  to  companies  and  enhance  their 
value.  Purchasers,  on  seeing  tlie  shares  so  quoted,  would 
have  a  right  to  believe  that  the  requirements  of  the  Stock 
Exchange  had  been  complied  with,  and  that  the  company 
whose  shares  they  proposed  to  purchase  had  therefore  sat- 
isfied an  independent  body  like  the  committee,  of  its  re- 
spectability and  solvency,  and  it  could  not  be  doul)ted  that 
they  would  be  willing  to  give  a  higher  price  for  the  shares 
in  consequence.  It  was  further  held  that  the  crime  of  con- 
spiracy is  completely  committed  the  moment  two  or  more 
have  agreed  that  they  will  do  at  once,  or  at  some  future 
time,  certain  things;  but  that  it  was  not  necessary,  in  order 
to  complete  the  offence,  that  any  one  thing  should  be  done 
beyond  the  agreement ;  and  that  an  agreement  made  with 
a  fraudulent  mind  to  do  that  which,  if  done,  would  give  to 
the  prosecutor  a  right  of  suit  founded  on  fraud,  is  a  criminal 
conspiracy. 

Another  phase  of  an  indictable  conspiracy  was  pre- 
sented in  Reg.  vs.  Esdaile.'  There  the  information  charged 
that  the  defendants,  intending  to  deceive,  defraud,  and 
prejudice  such  of  the  shareholders  of  the  Royal  British 
Bank  as  were  not  aware  of  the  true  state  of  the  affairs  of  the 
bank,  and  to  induce  others  to  become  customers  and  cred- 
itors of  the  bank,  and  to  purchase  and  hold  shares  there- 
in, did  conspire  falsely  and  fraudulently  to  publish  and  rep- 
resent that  the  bank  and  its  affairs  had  been  during  the 
3''ear  1855,  and  then  were,  in  a  sound  condition,  and  pro- 
ducing profits ;  and  that  defendants  published  and  distrib- 
uted a  balance-sheet  apparently  showing  such  a  condition, 
and  also  paid  a  dividend,  knowing  that  such  dividend  had 

'IF.  &F.  213. 


Couspiracies  to  Affect  Stocks.  623 

not  been  earned,  and  also  fraudulently  issued  new  shares 
while  the  bank  was  in  an  unsound  state.  Upon  the  trial 
thereof,  Lord  Campbell,  C.  J.,  charged  the  jury  that  if,  at 
the  time  mentioned,  the  bank  was  insolvent,  which  fact 
was  known  to  the  defendants,  and  that  they  nevertheless 
entered  into  the  design  to  represent  that  the  bank  was  in  a 
prosperous  state,  with  a  view  to  deceive  the  shareholders 
or  to  delude  the  public  into  becoming  shareholders,  a  con- 
s})iracy  would  be  made  out.  And  the  defendants  were  all 
convicted.^ 

'  The  rule  of  law  in  ch'il  cases  is  injury  must  be  the  immediate  and 

even  more  stringent  than  that  of  the  not  the  remote  consequences  of  the 

criminal  law,  and  the  general  prin-  representation^  thus  made." 
ciple  may  be  stated  that,  in  every       These  principles  have  been  af>- 

case  of  fraud  for  which  an  indict-  plied  to  an  infinite  number  of  trans- 

ment  can  be  sustained,  an  action  for  actions  in  which  the  directors,  pro- 

damaires  or  relief  in  law  or  equity  moters,    organizers,    or    originators 

will  lie  at  the  instance  of  the  grieved  of    companies    or    schemes,    either 

party.    The  general  principles  upon  through     the     instrumentality     of 

which  a  civil  liability  for  fraud  rests  Stock  Exchanges  or  otherwise,  have 

were  stated  by  the  vice-chancellor  been  guilty  of  fraud  or  deceit  in  in- 

in  Barry  vs.  Craskey,  2  J.  &  II.  1,  a.s  ducing  pei-sons  to  become  purchiis- 

f olio ws:  "First,  even,- man  mu.st  be  ers   of   shares   or   interests    in    the 

held     responsible    for    the    conse-  company.     The  following  are  some 

quences   of   a   false   representation  of  the  leading  cases:  Peek  vs.  Gur- 

niade    by    him    to    another,    upon  ney,  L.  R.  G  II.  L.  Cas.  377;  Pjisley 

which  that  other  acts,  and,  so  act-  vs.  Freeman,  3  T.  R.  51;  Bevan  vs. 

ing,.  is  injured  or  damnified.     Sec-  Adams,  19  W.  R.  76;  22  L.  T.  (n.  s.) 

oiidly,  every  man  nuist  be  held  re-  T'J't;  Beattie  vs.  F]l)ury,  L.  R.  7  H. 

sponsible  ff>r  the  coii.scquences  of  a  L.  Cjus.  102;  Pontifex  vs.  B'gnold,  3 

false  representation  ma<le  by  him  to  Scott    N.    R.    3!)0;   Shrewsbury    vs. 

another,  up<iii  which  a  third  person  Blount.  2  id.  ASS;  Clarke  vs.  Dick- 

urtH,  and,  so  acting,   is  injured  or  son,  6  C.  B.  (n.  a.)  4.')3;  Moore  vs. 

clamnified;  provided  it  appear  that  Burko,   4    F.   tt    F.   2.').S;   Gray   vs. 

such  false  repreHcntation  wjls  made  Collins,  id.. 302;  Smith  vs.  Clench, 

with   the   intent   that   it  shoulrj   be  id.  .'i7S;  Cross  vs.  Sacket,  C  .\b.  (.\. 

acted  upon  by  such  third  person  in  Y  )  Pr.  217;  Wakmian  vs.  Dalley, 

the  niatuicr  that  occasions  the  in-  M   Barb.  (.\.  Y.)  4\)H;  Cazeaux  vs. 

jur>'  or  JfjHs.     .\nd,  thirdly,  but   to  .M.ili,  2.')  id.  .57S;  s.  c.  ]!^  How.  Pr. 

bring  it   within   the  princifili-.   the  .{17;   .Morse  vs.  Switu,   H)  id.  275; 


02 1  Stock-lnokors  and  Slock  Exchaiii^es. 

By  the  law  of  Xcw  Ydk  tlViial  Code,  §§  168-170), 
no  conspiracies  are  j)miisliablc  criminally  except  those  there 
stated,  and,  among  others,  the  conspiiing  of  two  or  more 
persons  "  to  com m it  any  act  injurious  to  the  puhlic  healtii, 
to  j)ublic  morals,  or  to  trade  or  conanerec,  or  tor  the  perver- 
sion or  obstruction  of  justice  or  the  due  administration  of 
the  laws,"  shall  constitute  a  misdemeanor.  Under  this 
broad  and  comprehensive  language,  which  is  j)ractically 
the  rule  in  all  of  the  States,  either  by  a(l<)i)tiou  of  the 
common  law  or  express  statute,  infamous  conspiracies  or 
combinations    are  punishable,  whether  their   object  be  to 

^■c^vbery  vs.  Garland,  31  Barb.  121.  And  where  the  directors  of  a 
Ami  .see  the  following;  Davidson  v.s.  joint-stock  banlc,  knowing  it  to  be 
Tnlloch,  3  Macq.  (H.  L.)  783;  Derry  in  a  state  of  insolvency,  i.ssued  a 
vs.  Peek,  14  A.  C.  337;  Fenn  vs.  balance-sheet  showing  a  profit,  and 
Curtis,  23  Hun,  3S-1;  Perry  vs.  thereupon  declared  a  dividend  of  6 
Hale,  143  Mass.  540;  Prosser  vs.  per  cent,  and  issued  advertisements 
P'irst  National  Bank,  106  N.  Y.  677;  inviting  the  public  to  take  shares 
Conipton  vs.  Chelsea,  128X.  Y.  537;  upon  the  faith  of  their  representa- 
Tnunble  vs.  Ward,  97  Ky.  748;  tions  that  the  bank  was  in  a  flour- 
Merchants  National  Bank  vs.  Arm-  ishing  condition,  on  an  ex  officio 
strong,  65  Fed.  Kep.  932;  Foley  vs.  information  filed  bj^  the  attorney- 
Holtrey,  43  Neb.  133;  Exchange  general  they  were  found  guilty  of  a 
Bank  vs.  Gatskill,  37  S.  W.  Rep.  conspiracy  to  defraud.  Reg.  vs. 
100;  Investment  Co.  vs.  Eldridge,  2  Brown,  7  Cox  C.  C.  442;  Same  vs. 
Pa.  Dist.  Rep.  394;  Parker  vs.  Mc-  Esdaile,  1  F.  &  F.  213. 
Questen,  32  Q.  B.  R.  (Can.)  273;  It  was  held,  however,  in  Salaman 
Bellairs  vs.  Tucker,  L.  R.  13  Q.  B.  vs.  Warner,  65  L.  T.  R.  132,  in 
D.  103;  Morgan  vs.  Skiddy,  62  N.Y.  which  a  Stock-broker  brought  an 
310;  Kountze  vs.  Kennedy,  147  N.  action  for  deceit  and  conspiracy 
Y.  124;  Andrews  vs.  Mockford,  73  again.st  the  promoters  of  a  company. 
Law  Times  R.  726;  Brackett  vs.  alleging  that  lie  had,  owing  to  their 
Griswold,  112  N.  Y.  454;  s.  c.  13  N.  having  fraudulently  obtained  con- 
Y.  Supp.  192,  aff'd  128  N.  Y.  644;  trol  of  the  majority  of  the  shares. 
People  vs.  Garrahan,  19  App.  Div.  been  obliged  to  purchase  same  at  an 
(N.  Y.)  347;  Shattuck  vs.  Robins,  exorbitant  price  in  fulfilment  of  his 
68  N.  H.  565.  See  also  Cook  on  contracts,  that  plaintiff  failed  to 
Corporations,  5th  ed.,  chs.  IX.  and  make  out  a  case  of  deceit,  within 
XX.,  and  numerous  cases  cited  in  the  meaning  of  the  three  general 
the  notes  thereto.  principles  already  stated,  and  that 


Conspiracies  to  Affect  Stocks.  625 

alFect  the  ''  necessaries  •"  of  life,  or  securities,  or  other  prop- 
erty in  which  the  public  have  an  interest. 

A  conspiracy  to  depress  the  stock  of  the  Brooklyn  Rapid 
Transit  Company,  dealt  in  on  the  Stock  Exchange,  is  a  con- 
spiracy to  injure  trade  or  commerce  within  the  meaning  of 
this  section.' 

In  1S74  the  Legislature  of  the  State  of  New  York  (Laws, 
1S74,  ch.  440)  })assed  a  very  stringent  law  against  persons 
circulating  rumors  to  affect  the  stock  market,  as  follows : 

''  Sec.  I.  Every  pei'son  who  shall  knowingly  circulate 
false  intelligence  with  intent  of  depreciating  or  advancing 
the  market  price  of  the  public  funds  of  the  United  States, 
or  of  any  State  or  Territory  thereof,  or  of  any  foreign 
country  or  government,  or  the  stocks,  bonds,  or  evidence 

an   action   for  conspiracy   was   not  when  it  appeared  that  plaintiffs  and 

known  to  the  law.     If  the  defend-  defendants    had    a{!;reed    that    the 

ants  had  ajrreed  to  do  an  unlawful  purchase  was  to  be  made  on  the 

act,    they    might    be    indicted,    al-  Stock  Exchange  with  the  view  of 

though    their    agreement    did    not  inducing  the  pui)lic  to  believe  there 

result  in  any  act.     An  action  might  wti-s  a  market  for  them,  although,  as 

be  brought  against  several  defend-  the  parties  knew,  there  was  not  such 

ants  who  had  agreed  to  do  an  act  a  market,  and  the  court  further  held 

which  resulted  in  an  infringement  that  such  an  agreement  was  a  con- 

of  plaintiff's  legal   rights,   but   the  spiracy  for  which  the  parties  might 

cau.se  of  action  wa.s  not  the  agree-  Ije  indicted.     The  court  itself  raised 

ment.  but  the  infringement  of  plain-  the  cjuestion  of  illegality,  which  was 

tiffs  legal  rights,  which  in  this  ca.sc  not  advanced  by  the  partie.s.     And 

had  not  been  shown.  .see  Secor  vs.   Goslin,   X.   Y.   L.  J. 

In  Scott  vs.  Brown,  (1892)  2  Q.  March  26,  1901,  p.  2310,  where  mo- 

B.  D.  724,  it  wxs  heltl  that  princi-  tions  to  vacate  orders  of  arrest  were 

pal«  could  not  obtain  a  r(«ci.ssion  of  denied  on  the  ground  that  plaintiff 

a    contract    made    l>y    them    with  Stock-brokers  had  boon  induced  by 

Stock-brokers   to   purcha.se  shares,  the  fraud  and  consjiiracy  of  defend- 

and    recover   the    money    paid    for  ants  to  purchjise  W(»rthle.ss  stock. 

thorn,  on  the  grounil  that  the  Bro-  '  reopio    vs.    Goslin,    73    \.    Y. 

konj  had  dojivorod  their  own  shares  Supp.    r)20.    afT'd     171     X.    Y..f»27. 

to  thorn,  instoml  of  biiyinu  thorn  for  Sec  in   tiiis   connection,  People   vs. 

plaintiffs   on   the  Sto«-k    Kxchango,  I'utnam,  90  .\.  I)   12.'i 

40 


626  Stock-brokers  and  Slock  Kxcliaiiges. 

of  debt  of  any  cor[)oi'ati()n  or  association,  or  the  market 
price  of  any  nierchamlisc  or  commodity  whatever,  hIiuU  be 
deemed  guilty  of  a  misdemeanor,  and  shall  be  pniiishcd, 
upon  conviction  thereof,  by  a  fine  of  not  exceeding  live  thou- 
sand dollars,  and  imprisonment  for  a  period  not  exceeding 
three  years,  or  eitlier. 

"  Sec.  11.  Ever}'  person  who  shall  forge  the  name  of  any 
person,  or  the  officer  of  any  corporation,  to  an}"^  letter,  mes- 
sage, or  paper  whatever  with  intent  to  advance  or  dei)reci- 
ate  the  market  price  of  the  pul)lic  funds  (jf  the  United 
States,  or  of  anj?-  State  or  Territory  thereof,  or  of  any  for- 
eign country  or  government,  or  the  market  price  of  b(jnds 
or  stock,  or  other  evidence  of  debt  issued  by  any  corpora- 
tion or  association,  or  the  market  price  of  gold  or  silver 
coin  or  bullion,  or  of  any  merchandise  or  commodity  what- 
ever, shall,  upon  conviction,  Ijc  adjudged  guilty  of  forgery 
in  the  third  degree,  and  shall  be  punished  by  imj)risonment 
in  a  state  prison  for  a  term  not  exceeding  five  3'ears." 

This  statute  was  repealed  by  L.  1886,  ch.  593,  §  1,  subd.  49. 
Its  provisions  have  been  substantially  re-enacted  in  the  Penal 
Code,  §435.  An  indictment  under  this  section  charged  the 
defendants  with  conspiring  to  occasion  a  fall  in  the  market 
price  of  the  stock  of  a  corporation  by  "  contriving,  propagat- 
ing, and  spreading "  false  rumors  concerning  its  financial 
condition,  well  knowing  the  same  to  be  false — held  that  the 
indictment  was  sufficient,  as  the  words  "  contriving,  propa- 
gating and  spreading "  were  the  full  ecpiivalent  of  the 
statutory  Avord  "  circulating,"  and  motive,  intent  and 
guilty  knowledge  were  also  sufficiently  charged.  The  de- 
fendants had  ])iiblislu'd  advertisements  in  New  York  news- 
papers to  tlie  effect  that  the  stock  of  tin?  corporation  would 
fall,  that  it  would  be  obliged,  under  a  decision  of  the  court,  to 


Conspiracies  to  Affect  Stocks.  627 

pay  a  heavy  tax  under  the  Ford  act,  and  that  it  was  going 
into  the  hands  of  a  receiver,  and  it  was  held  that  the  evidence 
was  sufficient  to  sustain  a  conviction  for  having  violated  the 
provisions  of  this  section,  subd.  3.' 

It  is  provided  by  Laws  of  New  York  of  1S90,  c.  05)0,  that 
combinations  to  create  a  monopoly  in  the  manufacture  or 
sale  of  any  article  in  common  use  are  illegal,  and  punishable. 
It  was  held  in  Rourke  vs.  Elk  Drug  Co.'  that  any  person 
suffering  special  injury  on  account  of  such  acts  had  a  right 
of  action,  and  plaintiff  druggists  might  maintain  an  action 
against  defendants  for  conspiring  to  injure  their  business. 
The  act  of  1899  was  held  constitutional  in  Matter  of 
Da^'^es,^  and  in  Kellogg  vs.  Lehigh  Valley  R.  Co.  ^  it  was 
held  that  averments  in  a  complaint  as  to  an  alleged  unlaw- 
ful combination  against  plaintiff  grain  elevator  firm,  were 
good.  A  joint  stock  company  may  unite  with  a  rival  cor- 
poration, where  no  restriction  is  })laced  upon  anyone  from 
engaging  in  the  business  carried  on.^  Combinations  of  cor- 
2)orations  in  restraint  of  ti-ade  are  prohibited  by  the  Stock 
Corporation  Law,  ^  7.  A  combination  of  gas  companies 
was  held  not  to  violate  this  section."  An  examination  under 
the  Mtjnopoly  act  is  not  extrajudicial." 

In  lUiiK^is  it  was  held  that  the  Board  of  Trade  could  be 
coinpelh.'<l  to  continue  to  supply  the  plaintiff  corporation 
(the  Xew  V<jrk  (iiain  and  Stock  Exchange)  with  their  mar- 
ket ([notations  as  it  could  not  create  a  monopoly  therein, 
although   the  Board  of  Trade  was  a  private  corporation, 

'  I'cfjpir;  VH.  (JoHliii,  7.'i  N.  V.  '  I'Vaiicis  vs.  Taylor,  (if)  .\.  Y. 
Supp  .'j20,  ufT'd  171  -N.  Y.  027.  Supp.  2S. 

'77  .\.  Y.  Supp.  .'17:j.  •HafTcrty    vs.    HufTalo  City  Gas 

'  108  N.  Y.  H9.  Co.,  r,(j  S.  Y.  Supp.  2HK. 

♦70  N.  Y.  Supp   2:i7.  '  Re  .\ttorney  General,  17  N.  Y. 

Sui)p.  883. 


628  Stock-brokers  and  Stock  Excliaiij*es. 

Avhen  its  properly  was  devoled  to  a  public  use  and  became 
affected  with  a  })ublic  interest.' 

2.  '' Corner.'^,'' '' Rlg'jlng  the  tnarlxt,'' '' Pools r~i'\o&Q\y 
akin  to  the  foregoing  is  the  subject  of  "Corners,"  "  Iliggiiig 
the  market"  and  "Pools." 

A  "corner"  is  a  scheme  or  coml)ination  of  one  or  more 
"bulls"  who  are  "long"  of  certain  stocks  or  securities, 
to  compel  the  "bears,"  or  persons  "short"  of  the  stock, 
to  pay  a  certain  price  for  the  same.  Or  it  may  be  a  com- 
bination to  force  a  fictitious  and  unnatural  rise  in  a  mar- 
ket for  the  purpose  of  obtaining  the  advantage  of  dealers 
and  pui'chasers,  and  all  persons  whose  necessities  or  contracts 
compel  them  to  use  or  obtain  the  thing  "cornered."^ 

"  Itigging  the  market  "  is  described  as  a  process  by  which 
"  an  artificial  value  is  given  to  securities  by  means  of  dealings 
upon  the  market  which  are  not  genuine  dealings  on  behalf 
of  the  public."  See  Brodhurst's  Law  and  Pi'actice  of  the 
Stock  Exchange,  )x  2^.3 

A  "  pool "  is  defined  as  a  combination  of  persons  contrib- 
uting money  to  be  used  for  the  purpose  of  increasing  or 
depressing  the  market  price  of  stocks,  gi-ain,  or  other  com- 
modities;  also  the  aggregate  of  the  sums  so  contributed.' 
A  "  pool "  is  also  defined  as  a  joint  adventure  by  several 
owners  of  a  specified  stock  or  other  security  temporarily 
subjecting  all   their  holdings  to  the  same  control   for  the 


'  Stock   Exchange   vs.    Board   of  '  Scott  vs.  Brown,  (1892)  2  Q.  B. 

Trade,  127  111.  153.  724;  Begbie  vs.  Pho.sphate  Sewage 

'  Raymond  vs.  Leavitt,  13  Cent.  Co.,  35  L.  T.  350;   Marzetti's  Case, 

L.  J.    110.     As  to  when  it  is  not  42  L.  T.  206;  Twycross  vs.  Grant,  2 

libelous  per  se  to  say  of  a  Cotton-  C.  P.  D.  469;  Gray  vs.  Lewis,  L.  R. 

Broker  that  he  cornered  the  market,  8  Ch.  App.  1035. 

see  Labouisse  \'s.  Evening  Post,  41  ■♦  Webster. 
N.  Y.  Supp.  688. 


Conspiracies  to  Affect  Stocks.  029 

purpose  of  a  speculative  operation,  in  which  any  sacrifice 
of  the  shares  contributed  by  one,  and  an}'  profit  on  the 
shares  contributed  by  another,  shall  be  shared  by  all  alike.^ 

A  "corner"  is  manifestly  much  more  obnoxious  to  reason 
and  to  the  law  when  it  has  for  its  object  the  artificial  en- 
hancement of  the  market  value  of  any  kind  of  property 
which  purchasers  are  compelled  to  buy,  than  when  the 
scheme  is  formed  to  "  squeeze  "  the  "  bears,''  or  persons  who 
have  sold  property  which  they  did  not  possess,  hoping  to 
buy  it  when  it  reached  the  level  of  their  expectations.  Yet 
it  is  doubtful  whether  the  "corner"'  is  not  equally  illegal  in 
the  one  case  as  in  the  other. 

But,  in  any  case,  a  combination  or  scheme  which  has  for 
its  object  the  fraudulent  inducing  of  persons  to  sell  property 
for  future  delivery,  with  the  intention  orpurpose  of  compel- 
ling such  persons  to  buy  in  or  purchase  the  same  at  a  price 
fixed  by  the  combination,  destroymg  a  chance  or  opportun- 
ity of  a  fair  purchase,  is  void.^ 

These  "  corners  "  are  carried  out  in  f(jrms  varying  as  they 
relate  to  different  kinds  of  propei't}',  ov  as  they  are  managed 
in  one  or  more  places,  where  the  course  of  dealing  is  not  the 
same.  A  "  corner ''  in  stocks  may  be  ilkistrated  in  this 
manner :  The  "  bears  "  in  the  market  are  tiiose  persons  who, 
from  a  variety  of  reasons,  believe  or  hope  that  the  })rice  of  a 
certain  security  will  decline,  and  without  having  any  of  it, 
they  sell  the  sann.',  boi-rowing  the  security  fordeliverv  from 
some  third  jierson,  expecting  to  buy  it  at  a  lower  price  and 

'Century     Dictionary.     It     wjih  boncfit,   the  word   "pool"   \v.n\   no 

held  in  Green  v.s.  Hi-.'liarn,  Hil   .Mo.  technicul    nionnint;,    anti    thai     liu! 

.'J33,  that  wliere  three  persori.M,  own-  word  should  he  rea<l  in  the  li;:ht  of 

inK  between  them  GOO  nhares  of  the  the  whole  contract. 

nUyrk     of    a     c«(in|)any,    a^'refnl     to  '  Harry   vs    ("roskey,  2  John.s.   & 

"pfKjl"  Huid  »hureM  for  their  innlnal  III,  and  cum-.s  liercaftei  cited. 


630  Stock-brokers  and  Stock  Exchanges. 

return  it  to  the  IcntU'r.  The  difference  between  the  price 
at  which  they  sell  the  security  jiiid  the  price  which  they  are 
compelled  to  pay  for  the  same  constitutes  the  profit  or  loss 
of  the  transaction.  If  the  security  decline,  there  is  a  profit ; 
if  it  advance,  there  is  a  loss.  "The  bulls,"  on  the  other 
hand,  discovering  that  tliere  i.s  a  "short"  representation  in 
the  security,  sufficiently  large  to  justify  the  movement, 
combine  togetlier  to  buy  all,  or  as  much  of  the  security  as 
will  enable  them  to  accomplish  their  object ;  and  when  they 
have  succeeded  they  become  masters  of  the  situation.  The 
"  bears  "  are  then  compelled  to  buy  ;  but,  as  all  the  securit}'' 
is  in  possession  or  under  the  control  of  the  "  bulls,"  they  are 
forced  to  pay  any  price  which  the  cornering  party  chooses 
to  ask  for  it.     The  "  corner  "  is  then  complete. 

The  validity  of  the  combinations  which  we  have  here 
briefly  described  has  been  passed  on  by  the  courts  on  several 
occasions,  and  in  many  instances  they  have  been  declared  il- 
legal. 

In  the  interesting  case  of  Barry  vs.  Croskey,'  which  arose 
out  of  certain  dealings  on  the  London  Stock  Exchange,  a 
state  of  facts  was  revealed  which  showed  that  the  defend- 
ants, having  first  put  themselves  in  control  of  all  the  shares 
and  allotments  of  a  certain  company,  induced  a  Stock-job- 
ber to  sell  a  number  of  shares  for  future  deliver}- — i.  e.,  the 
next  settling-day — and  then  compelled  him  to  settle  his 
contracts  at  figures  satisfactory  to  them,  before  he  knew  of 
the  whole  truth  of  the  transaction.  He  subsequently 
brought  a  bill  in  Chancery,  in  which  he  averred  that  de- 
fendants, the  directors  and  secretary  of  a  projected  rail- 

>  2  Johns.  &  H.  1.  See  also  Brit-  Gray  vs.  Lewis,  L.  R.  8  Ch.  App. 
ish  and  American  Telejjraph  Co.  vs.  1035;  Salaman  vs.  Warner,  65  L.  T. 
The  Albion  Bank,  L.  R.  7  Ex.  119;    N.  S.  132. 


Conspiracies  to  Affect  Stocks.  631 

way  company,  having,  partly  by  allotments  to  fictitious 
pereons  and  partly  by  purchase,  obtained  possession  of  all 
the  shares  of  a  given  class  in  the  company,  though  their 
Broker  induced  plaintiff,  a  Stock-jobber,  to  contract  to  sell 
them  certain  of  such  shares,  to  be  delivered  upon  the  set- 
tling-day to  be  appointed  by  tlu^  committee  of  the  Stock 
Exchange  ;  and  that  they  then,  by  false  and  fraudulent  rep- 
resentations made  by  them  in  their  official  character  to 
the  committee  of  the  Stock  Excliange,  procured  the  appoint- 
ment of  a  settling-day  ;  u])on  the  arrival  of  which  plaintifi', 
being  by  reason  of  the  scheme  thus  contrived  by  defend- 
ants unable  to  procure  the  shares  he  had  contracted  to  de- 
liver, except  at  a  ruinous  premium,  was  compelled  to  pay 
defendants  a  sum  specified  in  the  bill  to  release  him  from 
his  contract ;  and  the  bill  prayed  for  a  declaration  that  such 
a  contract  was  fraudulent  and  void,  or  inoperative,  and  for 
rej)ayment  to  plaintiff  of  the  amount  Ik;  had  paid  in  respect 
thereof.  The  company  having  been  joined  as  defendants  to 
the  bill,  upon  the  ground  that  they  had  adopted  the  fraud- 
ulent representations  made  by  theii-  directors  and  secre- 
tary to  the  committee  of  the  Stock  Exchange,  the  court 
held,  on  demurrer  by  the  company,  that  although  the  com- 
pany might  have  benefited  by  the  fraudulent  representa- 
tions— e.  g.,  by  obtaining  a  quotation  and  an  increased  price 
for  their  shares — and  allhough  they  might  be  answerable 
for  that  increased  price,  or  for  any  other  direct  advantage 
derived  from  such  fraudulent  representations,  yet  it  not  be- 
ing shown  that  the  company  knew  such  repn^sent.itions 
were  made  by  their  directors  with  iutrnt  to  defraud  the 
])laintin',  by  compelling  hiui  to  pcifonn  his  (contract,  or  even 
that  they  knew  of  tlie  existence  of  such  a  contract,  tiie 
company  were  not  r(!sponsii)le  for  the  loss  |)l,iintiir  had  tlius 


G32  Stock-brokers  and  Stock  Exchanges. 

incidentally  sustained,  and  the  company's  demurrer  was  al- 
lowed ;  but  it  was  further  held  that  the  bill  was  not  open  to 
demurrer  on  the  part  of  the  other  defendants  on  any  ground, 
it  havinir  averred  that  the  several  defendants  had  combined 
to  practise  jointly  this  "  scheme  of  deceit,"  as  the  court 
termed  it.' 

The  case  of  Salamon  vs.  Warner,  supra^  afTords  an  example 
of  the  difficulty  of  successfully  maintaining  a  civil  action 
against  a  cornering  combination,  although,  upim  the  facts 
as  stated,  the  defendants  might  have  been  indicted. 

Sampson  vs.  Shaw^  presents  an  action  between  members 
of  the  cornering  combination.  In  that  case  it  appeared  that 
the  plaintiff,  the  firm  of  T.  &  Co.,  and  one  11.,  entered  into 
an  agreement  to  operate  in  the  stock  of  a  certain  railway 
company  for  the  purpose  of  getting  a  "  corner,''  T.  &  Co. 
taking  one  half,  and  the  plaintiff  and  R.  each  a  quarter  in- 
terest in  the  operation,  the  plan  of  operation  being  as  fol- 
lows :  T.  &  Co.  -were  to  be  the  managers,  and  were  to  buy 
up  a  large  quantity  of  the  stock  and  control  it  in  such  a 
manner  as  to  make  a  large  demand  for  it,  so  that  pai'ties 
selling  on  time  would  be  compelled  to  pay  large  differences  ; 
T.  <fe  Co.  were  then  to  receive  and  make  proposals  and 
agreements  thereon  for  the  purchase  of  stock  to  be  deliv- 
ered at  a  future  da}^  the  parties  agreeing  to  sell  not  then 
having  the  stock  in  possession  or  owning  it,  and  then  the 
sellers,  when  the  day  for  delivery  should  arrive,  would  be 
compelled  to  pay  such  pi-ices  or  differences  as  the  parties 
to  the  combination  might  ask  ;  the  money  to  carry  on  the 

*  As  the  result  of  an  inquirj'  \>\  (Barry  vs.  Croskey,  2  Johns.   &  II. 

the  Stock  Exchange  Committee  the  1)  was  snbsequently  ordered  to  be 

companj'  attempted  to  be  promoted  stricken  from  the  oflficial  list, 

in  the  case  mentioned  in  the  text  *  101  Mass.  145. 


Couspiracies  to  Affect  Stocks.  633 

operation  was  to  be  furnished,  and  the  profits  or  losses 
shared  or  borne  by  the  parties  in  proportion  to  their  re- 
spective interests;  that  said  stock  at  the  time  was  of  little,  if 
any,  intrinsic  value,  and  was  selling  in  the  market  for  about 
five  dollars  per  share  ;  that  R..  paid  in  money  from  time  to 
time  as  called  for  under  the  agreement  for  carrying  on  the 
o^ierations.  T.  &  Co.  did  proceed  to  make  purchases,  and 
in  so  doing  expended  a  large  sum  of  mone3^  The  opera- 
tion in  the  stock  wjis  not  successful,  and  the  money  invested 
therein  was  substantially  lost.  The  plaintiff  brought  an 
action  against  the  representatives  of  T.  ^t  Co.  for  money 
had  and  received.  The  defendant,  in  answer,  showed  that 
the  amount  had  been  actually  appropriated  or  expended  in 
carrying  out  the  above-described  agreement. 

The  auditor  to  whom  the  cause  was  referred  ruled  that 
the  agreement  for  operating  in  the  above  manner  was  ille- 
gal and  void  ;  and  this  ruling  was  sustained,  on  appeal,  by 
the  Supreme  Court,  which  held  that  neither  party  as 
against  the  other  could  enforce  what  remained  to  be  done, 
or  correct  what  liad  been  done,  under  a  conspiracy  of  that 
description,  and  that  such  an  agreement  <lid  not  make  the 
parties  partners. 

In  a  case  in  Michigan'  the  Supreme  Court  examined  the 
subject  of  a  "corner"  in  grain.  In  that  case  tlu?  ])hiintiff 
advanced  certain  money  to  the  defendants  Tor  \\\o.  piir|)ose 
of  controlling  the  wheat  market,  with  a  view  of  forcing  up 
prices  and  pi-oducing  a  "  ccjrner,"  and  c<jmj)elling  ))arties 
wlio  had  contracts  to  111!  to  pay  a  higher  price  for  wheat  to 
fill  them.  TIjc  action  was  to  recover  the  money  advanced  to 
th»'    (h'feuihint    Un-    this    purpose,    and   the  couit,   thi'ough 

'  l!.ivtiM.-ui   X-    I  .••ixill,   ]:\  ('.  1,1     I.    .1     1  10 


G34  Stock-brokers  and  Stock  Exchanges. 

Campbell,  J.,  in  a  very  able  and  thorough  opinion,  held  that 
the  plaintiff  was  not  entitled  to  recover.  The  court  said 
that  "  the  object  of  the  arrangement  between  these  parties 
was  to  force  a  fictitions  and  unnatural  rise  in  the  wheat 
market,  for  the  express  purpose  of  getting  the  advantage 
of  dealers  and  purchasers  whose  necessities  compelled  them 
to  buy,  and  necessarily  to  create  a  similar  difficult}'  as  to  all 
persons  who  had  to  obtain  or  use  that  commodity,  which  is 
an  article  indispensable  to  every  family  in  the  country. 
That  such  transactions  are  hazardous  to  the  comfort  of 
the  communit}'  is  universally  recognized.  This  alone  may 
not  be  enough  to  make  them  illegal,  but  it  is  enough  to 
make  them  so  questionable  that  very  little  further  is  re- 
quired to  bring  them  within  distinct  prohibition." 

The  cases  of  The  Morris  Run  Coal  Co.  vs.  Barclay  Coal 
Co.^  and  Arnott  vs.  Pittston,  etc.,  Coal  Co.^  held  contracts 
involving  similar  dealings  in  coal  to  be  against  public  policy. 
"  And,"  said  the  court,  in  Raymond  vs.  Leavitt,  supi^a, 
"we  think  the  reasoning  of  these  cases  is  based  on  familiar 
common-law  principles,  which  iipply  more  strongly  to  pro- 
visions than  to  any  other  articles.  .  .  .  At  common  law 
there  is  no  doubt  such  transactions  as  were  here  contem- 
plated, although  confined  to  a  single  person,  were  indictable 
misdemeanors  under  the  law  applicable  to  forestalling  and 
engrossing.  Some  of  our  States  have  abolished  the  old 
statutes  which  were  adopted  on  this  suljject,  and  which 
were  sometimes  regarded  as  embodying  the  whole  law 
in  such  cases.  .  .  .  But,  so  long  as  the  early  statutes  only 
were  repealed,  it  was  considered  that  enough  remained 
of  the  common  law  to  punish  combinations  to  enhance  the 

'  68  Pa.  St.  173.  *  68  N.  Y.  558. 


Conspiracies  to  Affect  Stocks.  635 

value  of  comuiodities.  And  when  this  doctrine  became  nar- 
rowed, it  seems  to  have  been  considered  that  such  combina- 
tions to  enhance  the  price  of  provisions  remained  under  the 
ban.  .  .  .  "We  do  not  feel  called  upon  to  regard  so  much  of 
the  common  law  to  be  obsolete  as  treats  these  combinations 
as  unlawful,  whether  they  should  now  beheld  punishable  as 
crimes  or  not.  The  statute  of  Xew  York,  which  is  univer- 
sally conceded  to  be  a  limitation  of  common-law  offences, 
is  referred,  to  in  the  case  in  6S  N.  Y.  558,  as  renderinsf 
such  conspiracies  unlawful.  .  .  .  There  may  be  difficulties  in 
determining  conduct  as  in  violation  of  public  policy,  where  it 
has  not  before  been  covered  by  statutes  as  precedents.  But 
in  the  case  before  us  the  conduct  of  the  parties  comes  within 
the  undisputed  censure  of  the  law,  and  we  cannot  sustain 
the  transaction  without  doing  so  on  the  ground  that  such 
dealings  are  so  manifestly  sanctioned  by  usage  and  public 
approval  that  it  would  be  absurd  to  suppose  the  legislature, 
if  attention  were  called  to  them,  would  not  legalize  them. 
"We  do  n(jt  think  public  opinion  has  become  so  thoroughly 
demoralized  ;  and  until  the  law  is  changed,  we  shall  decline 
enforcing  such  contracts.  If  parties  see  fit  to  invest  money 
in  such  ventures,  they  must  get  it  back  by  other  than  legal 
means." 

There  are  other  American  cases  which  sustain  the  doc- 
trine laid  down  in   Kavmond  vs.  Leavitt.^ 


'  The  following  rharf^e  of  Mr.  Jus-  "CIkxtlemen    of    tub    Crand- 

t'uc  Janiiesori  to  a  firand-jury  of  tlic  jruY. — Hcsidcs  tlu*  isfatvites  a;iaiii.st 

Criniinal  Court  of  Chicaf^o,  Ovi.  12,  K''>"l'l"'>i.  «cllin;j  luiuor  to  minors, 

ISSl,  illuHtratfs  tin- r-oiulitiori  of  the  and   acts  of   violence  to   person   or 

law  of  Illinois  \i|)on  the  subject   of  properly,  whirli  form  the  suhject  of 

whieh  we  are  treating;,  ho  fon-ihly  your  ordinary  delilierations,  I  wish 

and  thoroughly  that  we  give  it  in  to  eall  your  attention  to  one  wliieh 

full:  I    will    now    read:    'Whoever    eon- 


C8G 


Stock-brokers  jind  Stock  Exclian£?es. 


In  the  State  of  Xew  Vork  the  Supreme  Court  has  de- 
cided that  tlii^  law  will  not  aid  either  part}'  to  enforce  an 
agreement  entered  into  for  the  purpose  of  axlvancing  the 


tracts  to  have  or  give  to  himself  the 
option  to  sell  or  buy  at  a  future  time 
any  grain  or  other  commodity,  stock 
of  any  railroad  or  other  corporation, 
or  gold,  or  forestalls  the  market  by 
spreading  false  nmiors  to  influence 
the  price  of  commodilies  therein,  or 
corners  the  market,  or  tries  to  do  so, 
iu  relation  to  any  of  such  commodi- 
ties, shall  be  fined  not  less  than  SIO 
nor  more  than  SI 000,  or  confined  in 
the  County  Jail  not  exceeding  one 
3'ear,  or  both'  (Revised  Statutes, 
Illinois,  ch.  38,  §  130).  By  this  sec- 
tion are  denounced  three  separate 
misdemeanors — the  sale  of  options, 
forestalling  the  market,  and  corner- 
ing the  market.  All  these  have, 
either  in  name  or  in  spirit,  been  al- 
ways interdicted  by  the  common 
law,  and  that  of  forestalling  was,  at 
a  very  early  day,  made  punishable 
in  England  by  statute.  Over  a 
century  ago  a  movement  arose  in 
England  for  abolishing  the  restric- 
tions upon  the  freedom  of  trade,  and 
these  statutes  were,  or  a  part  of 
them,  repealed;  but  the  common 
law  has  remained,  both  there  and  in 
this  country,  unchanged,  though 
fallen  into  disuse.  The  exigencies 
of  the  times  induced  our  legislature 
a  few  years  since  to  re-enact  the 
statute  against  forestalling,  and  to 
add  to  it  those  touching  'options' 
and  'comers,'  which  I  have  read — 
offences  to  which  the  criminal  in- 
genuity of  our  ancestors  seems  not 
to  have  been  equal.  The  first  of- 
fence is  the  illegal  sale  of  options 


for  future  delivery  of  grain  and 
other  commodities.  The  fact  that 
property  is  .sold  to  be  delivered  at  a 
future  day  does  not  make  the  con- 
tract illegal,  although  it  is  not  at 
the  time  possessed  or  owned  l)y  the 
seller,  or  that  the  time  of  its  deliver^' 
is  left  within  fixed  limits,  optional 
with  the  buyer  or  seller,  though  in 
one  sense  any  such  sale  is  a  sale  of 
an  option  apparently  within  the 
statute.  What  makes  it  a  gambling 
contract  is  the  intent  of  the  parties 
that  there  shall  not  be  a  delivery  of 
the  commodity  sold,  but  a  payment 
of  differences  by  the  party  losing 
upon  the  rise  or  fall  of  the  market. 
Of  this  intent  the  jurj'  are  to  be  the 
judges,  and  it  may  be  inferred  di- 
rectly from  the  terms  of  the  con- 
tract or  indirectly  from  the  course 
of  dealing  of  the  parties  (Pickering 
vs.  Cease,  79  111.  32S;  Walcott  vs. 
Heath,  78  id.  433;  Pixley  vs.  Boyn- 
ton,  79  id.  351 ) .  By  this  legi.slat  ion 
the  General  .\ssembly  had  no  pur- 
pose to  interdict  bona  fide  sales  of 
commodities,  but  only  such  as  are 
colorable  or  fraudulent,  contrived 
by  both  parties  as  a  cover  merely 
for  gambling  transactions.  The 
offence  of  forestalling  originally 
consisted  in  the  l)uying  or  contract- 
ing for  merchandise  or  victuals  com- 
ing to  market,  or  dis.suading  persons 
from  bringing  their  goods  or  pro- 
visions there,  or  inducing  them  to 
raise  their  prices  (2  A\'Tiart.  Crim. 
Law,  1819).  Our  statute  has  nar- 
rowed the  offence  so  that  it  covers 


Couspiraeies  to  Affect  Stocks.                 637 

selling  price  of  stocks  by  means  of  Hctitious  dealings  de- 
signed to  produce  a  false  impression  on  the  minds  of  observ- 
ers concerning  their  real  value,  and  in  that  way  to  induce 

only  forestalling;  the  market  by  this  is  not  wronp;  then  nothing;  is 
spreadinti  false  rumors  to  influence  wrong.  Public  rumor  on  the  street 
the  price  of  commodities  tliereiu.  and  in  the  press  justifies  me  in  say- 
The  obvious  purpose  of  the  legisla-  ing;  that  these  offences  are  rife 
ture  in  makinsi  this  provision  was  to  among;  us;  and  in  asking  you,  if 
protect  the  people — the  consumers  evidence  to  that  effect  should  reach 
as  well  as  innocent  traders — from  you,  to  make  them  the  subject  of  in- 
the  damage  resulting  from  unnatu-  quiry,  your  duty  and  mine  is  plain, 
ral  and  fictitious  fluctuations  of  However  powerful  the  combination 
prices,  brought  about  by  the  false  to  defy  the  laws,  and  however  difh- 
suggestions  of  interested  persons,  cult  to  detect  and  punish  the  crimes. 
The  offence  of  cornering  the  market  we  rank  ourselves  with  the  criminal 
is  not,  so  far  as  I  am  aware,  men-  if  we  fail  to  bring  the  terrors  of  the 
tioned  in  the  books,  but  it  is  one  law  to  bear  upon  him.  For  one,  I 
of  a  numerous  family  of  frauds,  of  refuse  not  to  hear  what  fills  the  ears 
which  the  various  memljers  in  their  of  all  to  the  discredit  of  the  business 
fight  with  society  assume  an  infini-  men  and  methods  of  this  city.  The 
tude  of  shapes  and  colors.  crimes  indicated  are  being  commit- 
"  To  detect  and  punish  these,  not-  ted.  It  imports  much  that  the 
withstanding  the  novelty  and  ap-  validity  of  our  statute  and  its  suffi- 
parent  innocence  of  their  disguises,  ciency  to  reach  the  guilty  parties 
iij  the  first  business  of  courts  of  should  be  early  tested.  If  the  spread 
justice.  The  thing  which  we  know  of  gambling  has  infecteil  our  busi- 
aus  a  'corner'  in  the  market  might  be  ness  men,  the  consecpiences  cannot 
briefly  described  as  a  process  of  but  be  disastrous.  Tiie  course  of 
driving  unsuspecting  dealers  in  business,  instead  of  proceeding 
grain,  stock,  and  the  like  into  a  quietl\'  and  healthily,  will  become 
corral,  and  relieving  them  of  their  broken  by  fits  of  fever  and  panic; 
purses.  The  essence  of  the  offence  unlawful  gains  will  be  preferred  to 
consists  in  the  party  securing  a  con-  the  .slow  profits  of  legitimate  trade; 
tract  for  the  future  delivery  of  some  our  fanners,  partaking  of  the  |)reva- 
conunodity  at  his  option,  and  tlien,  lent  spirit,  will  iiold  Inick  their  crops 
In'  engrossing  the  stock  of  such  in  expectation  of  corner  proce.s.ses, 
conunodity  in  the  nuirket,  making  l)orrowing  money  on  mortgage  to 
it  im|K>K.sible  for  the  other  party  to  curry  on  their  operations,  instead  of 
complete  hLs  contract  8a\c  i<y  pur-  realizing  by  the  sale-s  of  farm  prod- 
chawing  of  \m  adversary  at  his  own  nets.  It  is  said  that  these  phe- 
price,  or  paying  in  cawh  the  differ-  nomena  are  already  .-ipparcnt ,  and 
ence  fixe<l  by  hiicIi  a<!verHary.  .\s  they  are  charged  to  be  the  effects  of 
waa  said  of  another  great  wrong,  if  violations  of  the  law.     I  will  only 


638  Stock-brokers  and  Stock  Exchanges. 

them  to  invest  their  money  in  such  stocks.  Such  an  aarec- 
nient  is  void  and  against  public  polic}-.'  But,  as  tlie  facts 
are  not  given  in  the  last-mentioned  case,  it  is  impossible  to 
determine  its  value  as  a  precedent. 

And  a  contract  entered  into  b}'  the  grain-dealers  of  a  town 
which,  on  its  face,  indicates  that  they  liave  formed  a  [)art- 
nership  for  the  purpose  of  dealing  in  grain,  but  the  ti-uc  ob- 
ject of  which  is  to  form  a  secret  combination  which  would 
stifle  all  competition,  and  enable  the  parties,  by  secret  and 
frau(hdent  means,  to  control  the  price  of  grain,  costs  of  stor- 
age, and  expense  of  shipment  at  such  town,  is  in  restraint 
of  trade,  and  consequently  void  on  the  ground  of  public 
policy.^ 

It  was  also  held  in  Wright  vs.  C'udahy,^  that  a  contract 
of  partnership  between  two  persons  under  which  large  quan- 
tities of  pork  were  purchased,  with  a  view  to  getting  the 
market  "  short,"   and  thus  advancing  the  market  price  of 

add  that  it  is  not  your  duty  to  seek  699-708;  Morris  Run  Coal  Co.  vs. 
inquisitorially  for  evidence  that  Barclay  Coal  Co.,  68  Pa.  173;  Corn- 
crimes  have  been  connnitted.  monwealth  vs.  Carlisle,  Brif^htly, 
Should  evidence  come  to  j'ou  36;  King  vs.  De  Berenger,  3  Man.  & 
through  the  regular  channels,  your  S.  67,  72;  3  Rev.  Stat.  (5th  ed.)  973, 
duty  will  be  to  consider  it,  and  act  sub.  6  of  §  8. 

fearlessly   and   promptly   to   vindi-  -  Craft   vs.    McConoughy,   79   111. 

cate  the  laws.     I  think  I  may  prom-  346;  s.  c.  22  Am.  Rep.  171.     Com- 

ise,  on  the  part  of  the  judiciary  of  binations  to  corner  the  market  in 

the  county,  that  if  you  present  men  grain  are  illegal,  Wright  vs.  Crabb, 

for  crime  it  will  not  go  unpunished,  78  Ind.  487,  but  a  Broker  who  is 

so  far  as  the  enforcement  of  the  unaware  of  his  principal's  intention, 

laws  depends  on  them."  niay  recover  the  amount  of  a  note 

'  Livermore  vs.  Bushnell,  5  Hun,  given  to  him  by  the  principal  in  set- 

285.     The  court  cited  Thompson  vs.  tlement  of  his  account.     Id.     See 

Davies,  13  Johns.  112;  Brisbane  vs.  also  Wells  vs.  McGeoch,  71  Wis.  196, 

Adams,  3  Comst.   129;  Hooker  vs.  holding  a   combination    to    corner 

Vandewater,  4  Denio,  349;  Stanton  grain  illegal, 

vs.  Allen,  5  id.  434;  Marsh  vs.  Rus-  M8  N.  E.  Rep.  39. 
sell,  2  Lans.  340;  2  Kent  (7th  ed.), 


Conspiracies  to  Affect  Stocks.  ij'S'i* 

pork,  was  within  the  Illinois  statute,  g  130,  and  therefore 
void,  although  the  deal  eventually  proved  unsuccessful. 

So,  an  agreement  entered  into  by  several  commercial 
fii'ms,  by  which  they  bound  themselves  for  the  term  of 
three  months  not  to  sell  any  Indian  cotton-bagging  except 
with  the  consent  of  the  majority  of  them,  was  held  to  be  a 
combination  to  enhance  the  price  of  the  article,  which  was 
in  restraint  of  trade  and  contrary  to  public  order,  and  that 
the  agreement  could  not  be  enforced  in  a  court  of  justice.' 
So  of  a  combination  to  control  the  sale  and  price  of  coal.-' 

In  Arnot  vs.  Pittston  Co.'^  the  Court  of  Appeals  of  New 
York  said,  in  speaking  of  a  combination  to  enhance  the 
price  of  coal  by  keeping  the  latter  out  of  the  market,  "  that 
a  conibination  to  effect  such  a  purpose  is  inimical  to  the  in- 
terest of  the  public,  and  that  all  contracts  designed  to  effect 
such  an  end  are  contrary  to  public  policy,  and  thei'efore  ille- 
gal, is  too  well  settled  by  adjudicated  cases  to  be  questioned 
at  this  day.  Eveiy  producer  or  vendor  of  coal  or  other 
commodity  has  the  right  to  use  all  legitimate  efforts  to  ob- 
tain the  best  price  for  tiie  article  in  which  he  deals  ;  but 
when  he  endeavors  to  artfully  enhance  prices  by  su])press- 
ing  or  keeping  out  of  the  market  the  product  of  others,  and 
to  accomplish  that  purpose  by  means  of  contracts  binding 
them  to  withlu^ld  thcii-  supply,  such  agreements  arc  even 
more  mischiev(jus  than  combinations  not  to  sell  tinder  an 
agreed  price.  Combinations  of  that  character  hav(^  Ikhmi 
held  to  be  against  pul^lic  policy  and  illegal.  If  they  should 
be  .sustained,  the  prices  of  articles  of  mere  necessity,  such 

'India  .AHHociulioii   vs.   Kock,    II  i{iiii  ("(lalCo.  vs.  Hiirc-lay  Coal  Co., 

La.  .\nri.  HiS.  (iS  Ta.  Si.  173. 

'  .\rnot  vs.  I'ittsloii  Canal  Co.,  (iS  '  Supra. 
N.  Y.  r,r}H;  'J.'J  Am.  IU-|..  I'.JO;  .Murrin 


640  Stock-brokers  and  Stock  Exchiiuges. 

as  coal,  flour,  and  other  iiKlisi)ensable  commodities,  might 
be  artificially  raised  to  a  ruinous  extent  far  exceeding  any 
naturally  resulting  from  the  proportion  between  supply  and 
demand/' 

Jjut  an  agreement  to  combine  stock  for  the  purpose  of 
terminating  mismanagement  by  a  change  in  the  direction, 
through  the  instrumentality  of  a  majority  of  votes  at  a  reg- 
ular election,  is  not  in  conflict  with  the  requirements  of 
the  law,  and  in  no  wise  derogates  from  its  policy/  'Kov  i ; 
an  agreement  made  between  a  like  number  of  stockholders, 
in  regard  to  holding  their  stock  and  selling  the  same  to- 
gether, invalid  and  in  contravention  of  public  policy  and 
law,2  So  an  agreement  to  form  a  "  pool "  for  speculating 
in  a  particular  stock  is  not  necessarily  void  as  against 
public  policy.^ 

By  L.  1887,  c.  175,  L.  1889,  c.  257,  and  L.  1891,  c.  158, 
Dassler's  Gen.  Stats.  §§  2427-46,  pooling  in  grain  and 
stock  or  other  unlawful  specified  combinations  to  control 
prices  and  in  restraint  of  trade,  are  made  misdemeanors  in 
Kansas,  and  similar  statutes  have  been  enacted  in  Nebraska. 
Comp.  Stats.  1901,  §§  6959-C>4,and  Kentucky,  Ky.  St.  §  3915. 
Other  like  statutes  prohibiting  trusts,  and  unlawful  combi- 
nations in  restraint  of  trade  have  been  passed  in  several  other 
States  and  by  Congress,  and  many  decisions  interpreting 
them  have  been  rendered  by  the  courts.^     A  pool  of  a  num- 

'  Havemeyer  vs.  Havemeyer,  11  and   "Excessive  Combination  and 

J.  &  S.  (N.  Y.)  513.  its  Remedy,"  in  6  Law  Notes,  101. 

2  Id.  507.  Under  the  Anti-Trust  Act  of  1890, 

^  Quincey  vs.  White,  03X.  Y.  370,  a  combination  of  stock-holders  of 

383.  two  competing  railroads  by  which  a 

*  See  the  following  article:  "Anti-  majority  of  its  stock  is  tran.sferred 

monopoly  legislation  from  the  days  to  a  corporation  organized  to  vote 

of  Elizabeth  to  the  .\nti-Trust  .Vet  same,  and  thus  prevent  competition, 

of  1890,"  in  55  Cent.  Law  Jour.  144,  is     illegal.     U.     S.    vs.     Northern 


Conspiracies  to  Affect  Stocks.  641 

ber  of  persons  to  advance  the  price  of  lard,  being  unlawful 
under  the  New  York  statutes,  an  accounting  cannot  be  had 
against  Brokers  who  acted  as  agents  for  the  pool  in  carry- 
ing out  the  scheme.' 

In  concluding  our  review  of  these  miscellaneous  author- 
ities in  reference  to  combinations  or  corners,  it  is  very 
important,  as  bearing  upon  their  validity,  to  keep  in  mind 
that  by  the  statute  of  Xew  York  "short"  sales  of  securities 
are  legalized.-  This  statute  would  seem  to  show  most  em- 
phatically that  the  "  public  policy  "  of  the  State  of  New 
York  sustains  the  practice  of  selling  "  short,"  which,  as  we 
have  seen,  is  reprobated  by  the  statutes  of  Massachusetts, 
Georgia  and  South  Carolina  ;  and  the  legislature,  having  en- 
couraged and  legalized  these  "  short  "  contracts,  it  becomes  a 
question  of  very  grave  doubt  whether  the  juilicial  powers 
should  be  used  to  relieve  persons  selling  "  short "  f  njni  these 
"corners,"  which  are, after  all,  but  the  logical  consequences 
of  their  own  acts. 

"Where  the  parties  organizing  a  corner  are  guilty  of  fraud, 
as  in  Barry  vs.  Croskey,^  or  where  other  circumstances 
intervene  which  render  it  manifestly  unjust  to  enforce  the 
result  of  the  combination  against  the  si-'llere  of  stocks,  the 
courts  may  interfere.  But,  in  theordinary  caseof  a  "short" 
sale  of  stocks,  it  is  very  doubtful  whether  the  courts  should 
be  used  to  protect  persons  from  the  consequences  of  their  own 
folly  in  selling  that  which  they  do  not  own,  in  the  hope 
and  expectation  that  by  such  sales  the  j)roperty   of  others 


Sectiritics  Co.,  120  Fed.  721,  iiffM  vs.  Sugar    Refining    Co.,    51   Hun, 

by    the    Supreme    Court,    Marcli,  .'l.'il. 

1904.  '  Luw.s,  IS.JS.  eh.    HI,  now    }  22 

'  Ix.*onar(l    vh.    I'oole,    111    X     V.  of  the  Personal  I'miM-ily  I.iiw. 

371.     S«r<'  jj.sf)  im  to  KUgar,   I'eoplu  '  2  .lolm.  Si  ]\.  1. 
1 1 


042  Stock-brokers  and  Stock  Exchanges. 

will  be  so  much  affected  as  to  make  their  undertaking  a 
success.  And,  if  their  expectations  should  fail,  there  would 
seem  to  be  neither  reason  nor  justice,  especially  in  those 
States  where  "  short" sales  are  sanctioned  by  statute,  in  the 
courts  aiding  them  to  get  relief  from  their  contracts. 

In  England  "  corners  "  sometimes  arise  out  of  the  peculiar 
system  which  there  prevails  of  dealing  in  shares  befoi'e 
allotment,  and  they  were  the  subject  of  investigation  by  the 
Koyal  Commission  to  which,  we  have  before  alluded.'  The 
operation  is  there  explained  as  follows  : 

There  is  yet  another  aspect  of  the  dealings  in  shares  be- 
fore allotment.  It  may  be  called  the  "stock-jol)bing" 
aspect.  Quite  independently  of  the  object  of  floating  the 
company  by  getting  its  share  capital  subscribed,  the  pro- 
moters of  worthless  companies  have  the  immediate  object 
of  receiving  larger  profits  to  themselves  by  traffic  in  these 
new  shares.  Dealings  before  allotment  give  them  the  req- 
uisite facilities  for  so  doing. 

There  is  another  way  in  which  this  dealing  before  allot- 
ment operates  on  the  Stock  Exchange.  The  promoters  of 
a  new  company  send  into  the  market  and  buy  at  a  premium 
a  large  quantity  of  their  own  shares — a  quantity  so  large, 
perhaps,  relatively  to  the  entire  share  capital,  that  when 
the  settling-day  comes  after  the  allotment,  and  the  sellers 
have  to  procure  the  shares  to  deliver,  they  find  themselves 
in  a  difficulty  ;  for  the  promoters — who,  it  must  be  remem- 
bered, have  the  allotment  entirely  in  their  own  hands — have 
allotted  so  many  shares  to  themselves  or  their  friends,  or  to 
other  persons,  with  an  understanding  that  they  must  keep 
the  shares  allotted  to  them  and  not  sell  them,  or  have  kept 

'  Rep.  of  Stock  Exch.  Com.  1878. 


Conspiracies  to  Affect  Stocks.  643 

back  so  large  a  quantity  of  shares  and  not  allotted  them  at 
all,  that  they  have  practically  obtained  the  entire  control 
of  the  market;  and  the  dealers  who  have  sold,  in  the  ex- 
pectation of  having  a  free  market  of  the  entire  share  capital 
to  buy  in  for  the  purpose  of  delivery,  find  themselves,  as 
it  is  called,  "  cornered,"  and  obliged  to  pay  such  prices  as 
the  sellers  choose  to  ask,  to  enable  them  to  complete  their 
contracts. 

This  practice  of  buying  shares  or  other  securities — the 
buyer  having  already  possessed  himself,  or  in  some  other 
manner  procured  the  control,  of  so  large  a  quantity  of  the 
thing  which  the  seller  has  contracted  on  a  future  day  to 
deliver,  that  the  seller  is  "  cornered,''  and  virtually  ])laced 
at  the  mercy  of  the  buyer — is  not  confined  to  the  dealings 
before  allotment  in  the  shares  of  a  new  company  or  loan ; 
but  it  is  obvious  that  the  allotment  of  the  shares  of  a  new 
company,  being  entirely  in  the  hands  of  the  promoters, 
gives  them,  if  they  choose  to  purchase  their  own  shares 
before  the  allotment,  unusual  facilities  for  carr}-  out  such 
an  operation.  Accordingly,  the  rules  of  the  Stock  Exchange, 
as  administered  by  the  committee,  provide  methods  of  de- 
feating such  combinations. 

In  the  case  of  new  companies,  all  bargains  before  allot- 
ment are  made  for  some  future  day,  which  is  not  fixed  at 
the  time  the  bargains  are  made,  but  it  is  to  be  fixed  at  a 
future  day  by  the  committee  of  the  Stock  Exchange  ;  and 
if  the  committee  refuse  to  fix  a  day  of  special  settlement,  all 
bargains  that  have  been  previously  made  are  void.  This 
system  enables  the  committee  to  defeat  opi/rations  of  the 
character  we  have  been  just  describing  in  cases  where  they 
can  arrive  at  the  necessary  facts.  They  hear  and  entertain 
any  obj(.-ction  that  any  member  may  makt;  to  the  settlement 


644  Stock-brokers  and  Stock  Kxcliaiiges. 

being  granted  ;  and  if  it  is  shown  to  tlieui  that  the  promoters 
Lave  by  tbeir  dealings,  coupled  with  the  allotment,  pi-actically 
obtained  the  command  of  the  uiai'ket,  ami  placeil  the  dealers 
or  sellers  in  an  unfair  position,  the  settlement  is  refused. 

If  false  statements  are  made  to  the  committee  in  order  to 
induce  them  to  grant  quotation  or  settlement,  the  guilty  par- 
ties may  at  law  be  made  criminally  or  civilly  liable.  Thus 
in  the  Eupion  Gas  case,  before  referred  to,'  the  promoters 
of  the  company  were  convicted  on  a  charge  of  agi-eeing  to- 
gether by  false  pretences  to  deceive  the  members  of  the 
committee,  and  to  induce  them,  contrary  to  the  true  intent 
and  meaning  of  the  rules,  to  order  a  quotation  of  the  shares 
of  the  company  in  the  official  list ;  and  thereby  to  induce 
and  persuade  all  persons  who  should  thereafter  buy  and 
sell  the  shares  of  the  said  ccmipany  to  believe  that  the  latter 
was  duly  formed  and  constituted,  and  had  in  all  respects 
complied  with  the  rules  so  as  to  entitle  them  to  have  their 
shares  quoted. 

But  it  was  held  in  Ex  parte  Ward,  that  if  the  settling  day 
has  been  obtained  from  the  committee  by  a  fraud  to  which 
the  contracting  parties  were  not  privy,  the  conti'act  does 
not  become  void.^ 

*  Reg.  vs.  Aspinall,   1    Q.  B.  D.  althoujih   the   defendants    did   not 

730;  2  id.  48.     In  Rees  vs.  Feniie,  4  deny  the  fraud  practiced  by  them 

N.  R.  539,  13  W.  R.  6,  it  was  held  on  phxintiff. 

that  where  a  person  owiiing  only  *  20  Ch.  Div.  356. 

thirty  shares   in   a  company,  con-  The    Penal    Code    of    California, 

tracted  for  the  purchase  of  between  §  395  (Pomeroy's  Annotated  Codes, 

700  and  800  shares  for  future  de-  p.  175),  makes  it  a  misdemeanor  for 

livery   but   was   unable   to   deliver  anj'  person  to  employ  any  fraudu- 

them  in  consequence  of  his  intended  lent    means    to    affect    the   market 

vendees  being  in  control  of  the  com-  price   of   property,    and   under  the 

pany's  shares,  the  court  will  not  set  Illinois  statute,  supra,  cornering  the 

aside  the  contracts,  which  were  in  market    is  puni.shable   by  fine  and 

the  nature  of  gambling  contracts,  imprisonment.     .\n  attempt  to  cor- 


Principles  DtMluciblo  from  tlio  Cases.  ()45 

(g.)  General  Principles  Dcdiiciblf  from  the  Cases. 

The  general  result  of  the  decisions,  heretofore  commented 
upon,  or  cited  in  this  connection  in  the  notes,  uj)on  the  sub- 
ject of  wagering  contracts,  may  be  summed  up  as  follows  : 

1.  "Where  a  contract  is  made  for  the  delivery  or  accept- 
ance of  securities  at  a  future  day  at  a  price  named,  and 
neither  party,  at  the  time  of  the  making  of  the  contract,  in- 
tends to  deliver  or  accept  the  shares,  but  merely  lo  pay 
differences  according  to  the  rise  or  fall  of  the  market,  the 
contract  is  void  either  by  virtue  of  statute  or  as  contrary  to 
public  policy.^ 

2.  That  in  each  transaction  the  law  looks  primarily  at  the 
intention  of  the  ))arties,  which  intention  is  a  matter  of  fact 
for  the  jury  to  determine.' 

3.  That  the  form  of  the  transaction  is  not  conclusive  ;  and 
oral  evidence  may  be  given  of  the  surrounding  circumstances 
and  condition  of  the  parties  to  show  their  intention,  and  that 
a  contract  purporting  on  its  face  to  be  a  contract  of  sale  is  a 

ner  the  market  in  corn  is  within  the  such  deposit  w;is  put.     Armstroni; 

latter  statute.     Fo.ss  vs.  Cunimint^s,  vs.  American  Exchange  Nat.  Bank, 

149   111.   3o3.     Neither   Broker  nor  133  U.S.  433. 

principal  can  enforce  contracts  '  Grizewood  vs.  Blanc,  11  C.  B. 
arising  out  of  "cornering"  the  538,  and  all  of  the  other  authorities 
wheat  market.  Sanuiels  vs.  Oliver,  agree  upon  this  proposition.  The 
1.30  111.  73.  In  an  action  again.st  intention  of  the  parlies,  however, 
defendants  to  recover  an  excess  of  formed  after  the  making  of  the  con- 
price  paid  for  grain  by  reason  of  a  tract,  does  not  affect  its  validity 
"corner"  \>y  defendants,  latter  (Sawyer  vs.  Taggart,  14  Bush  (Ky.), 
cannot  he  compelled  to  testify  that  727)  If  stock  trai\sactions  are 
they  "cornered"  t lie  market.  Lam-  illegal  in  their  inception,  Ihev  he- 
son  vs.  Boyden,  10(J  111.  013.  A  come  valid  by  subsequent  actual 
certifirat*  of  <leposit  given  in  con-  receipt  an<l  delivery.  Smith  vs. 
ne<-tion  with  a  "coniering"  trans-  New  York  Stock  itc.  Exchange,  'ir^ 
action  in  wheat  in  violation  of  the  N.  Y.  Supp.  201. 
IllinoiH  Htatule,  may  be  Hue<l  on  by  a  '  .Ml  of  tlie  authorities  agrc*-  u|)()n 
bank  ignorant  of  the  use  to  which  this    propo.sition. 


646  Stock-brokers  and  Stock  Kxchaiif^es. 

mere  gambling  device,  although  the  contract  is  in  writing 
under  seal.^ 

4.  That  option  contracts  —  viz.,  "  puts,"  "  calls,"  and 
"straddles" — are  not prhna/dcic  gambling  contracts.'' 

5.  To  make  a  contract  a  gambling  transaction,  both  par- 
ties must  concur  in  the  illegal  intent.^ 

6.  The  defence  of  wager  must  ])e  affirmatively  pleaded, 
and  the  burden  of  proof  is  upon  tlie  party  asserting  the 
same.^ 

7.  In  construing  a  contract,  that  construction  is  to  be  pre- 
ferred \\hicli  will  support  it,  rather  than  one  which  will 
avoid  it.^ 

8.  A  Broker  w^ho  makes  real  contracts  with  third  persons 
in  behalf  of  his  Client,  with  the  understanding  between  the 
Client  and  Broker  that  the  former  shall  never  be  called  upon 
to  j)ay  or  receive  more  than  differences,  can  recover  the 
amount  paid  out  for  his  Client  in  the  transactions,  together 
with  his  commissions." 

'  Yerkes  vs.  Salomon,  11  Hun  (N.  ^  Lehman     vs.     Strassberger,     2 

Y.),  471;  Story  vs.  Salomon,  71   X.  AVood  C.   C.   554;   Hibblewhite  vs. 

Y.  420;  Hibblewhite  v.s.  McMorine,  McMorine,  5  M.  &  W.  462;  Gresham, 

5  M.  &  W.  4GG;  North  vs.  Phillips,  J.,   in   Williar  vs.   Irwin,    12   Chic. 

89  Pa.  St.  2.50;  Smith  vs.  Thomas,  Law  News,  241.     But  see  Connor 

10  Weekly  Notes  (Pa.),  112;  Gresh-  vs.   Black,   119  Mo.   126;    132  Mo. 

am,  J.,  in  Williar  vs.  Irwin,  12  Chic.  150. 

Law  News,  241 ;  Waite  vs.  Frank,  86  *  Dykers  vs.  Townsend,  24  N.  Y. 

N.  W.  Rep.  105.     Porter  vs.  Viets,  1  57;  Bigelow  vs.  Benedict,  70  id.  206; 

Bi.«s.    177,    if   contrary   to   this,    is  Story    vs.    Salomon,    71»   id.    420; 

against    all    the    authorities.     See,  Sprague  vs.  Warren,  26  Neb.  326. 

however,  Universal  Stock  Exchange  But  see  Rudolf  vs.  Winters,  7  Neb. 

vs.  Stevens,  66  L.  T.  R.  612.  127;  Bernard  vs.  Backhaus,  3  Wis. 

'  Story  vs.  Salomon;  Yerkes  vs.  L.  N.  338. 

Salomon,  supra.     But  see  Wolcott  '  Bigelow  vs.  Benedict,  70  N.  Y. 

vs.  Heath,  78  Til.  43;  Pickering  vs.  202;  Story  vs.  Salomon,  supra. 

Cease,  79  id.  328;  Lyon  vs.  Culbert-  « Thacker  vs.  Hardy,  27  W.  R 

son,  83  id.  33;  Schneider  vs.  Turner,  158. 
130  ni.  38. 


Principles  Dediicible  from  the  Cases.  647 

9.  A  Broker  who  advances  money  to  his  principal  to  pay 
losses  incurred  in  a  stock-wagering  transaction  can  recover 
the  same  either  on  a  note  or  otlierwise.' 

10.  A  bill  of  exchange  or  promissory  note  given  upon  a 
stock-jobbing  transaction  is  valid  in  the  hands  of  a  party 
who  took  it  before  it  was  due,  for  value,  and  without  notice 
of  the  illegal  consideration.^ 

11.  But  such  a  bill  is  void  in  the  hands  of  the  original 
parties,  or  in  the  hands  of  a  person  who  takes  it  after  it  is 
due  or  with  notice  of  the  facts.^ 

'  Id.;  Lehman  vs.  Strassberger,  2  238.     But  see  Tenney  vs.  Foote,  4 

Wood  C.  C.   554;  Woodworth  vs.  Brad.  (111.)  594;  Hawley  vs.  Jones, 

Bennett,  43  N.Y.  273-277;  compare  69  Ala.  52;  Cunnint^ham  vs.  Bank, 

Sampson  vs.  Shaw,  101  Ma.ss.  145;  71  Ga.  405;  Campbell  vs.  Bank,  74 

Wyman  vs.  Fiske,  85  id.  238;  Can-  Miss.  526;Snoddy  vs.  Bank,  SSTenn. 

nan  vs.  Bryce,  3  B.  &  A.  179;  Amory  575.     It  wa.s  held  in  the  District  of 

vs.   Meryweather,   2   B.   &  C.   573;  Columbia  that  such  a  note  could  not 

Gregory  vs.  Wendell,  39  Mich.  337.  be  recovered,  LuUy  vs.  Morgan,  21 

See,  however,  the  decisions  in  Illi-  D.  C.   88,   but  this   ca.se  has  been 

nois  under  the  gaming  statutes  of  overruled    owing   to   statutory   en- 

that  State,  contra.  actment.     Wirst  vs.Stubblefield,  17 

»  Day  vs.  Stuart,  6  Bing.  109;  3  App.  D.  C.  283. 
Moo.  &  P.  334,  Chit.  Jr.  1448;  '  Danforth  vs.  Evans,  16  Vt.  538; 
Greenland  vs.  Dyer,  2  M.  &  Ryl.  Brown  vs.  T\irner,  7  T.  R.  630;  2 
422;  Faikney  vs.  Reynous,  4  Burr.  Esp.  631;  Aubert  vs.  Maze,  2  Bos.  & 
2069;  Amory  vs.  Meryweather,  2  B.  P.  374;  Steers  vs.  La.shley,  6  T.  R. 
&  C.  573;  s.  c.  Chit.  Jr.  120;  Rawl-  61;  Chit.  Jr.  533;  Amory  vs.  Mery- 
ings  vs.  Hull.  1  C.  &  P.  11;  Wood-  weather,  2  B.  <k  C,  573.  As  to  re- 
worth  vs.  Bennett,  43  X.  Y.  273-  lieving  parties  from  wagering  trans- 
277;   Wyman  vs.   Fiske,  85  Mass.  actions,    sec  "Remedies,"  Cii.  VII. 


648  Stock-brokers  and  Stock  K.vcliaii^es. 


Chapter  VI. 

STOCK  EXCHANGE  SECURITIES  ;  NEGOTIABILITY  AND  NON- 
NEGOTIAHILITY  ;  DEALING  WITH  APPAKENT  OWNERS; 
FRAUD  ;  ILLEGALITY. 

/.  Stoch  Exchange  Securities, 
{a.)  Negotiable  Securities, 
{b.)  No n- Negotiable  Securities. 
II.  Negotiability. 

{a.)  Origin  and  Nature  of  Negotiability. 

{b.)  How  Negotiability  may  be  Established. 

{c.)  Requisite  JElements  of  Negotiability. 

(d.)  Results  of  Negotiability;  Bona  Fide  Holders. 

III.  Xon-JS^egotiahility. 

(a.)  Doctrine  of  Non-Negotiability. 

(b.)   Negotiability  as  Apj^lied  to  Stock  Certificates. 

(c.)  Forged  Transfers. 

IV.  iJealiny  loith  Apparent  Owners  j  Fraud ;  Illegality. 

I.  Stock  Exchange  Securities. 

In  this  subdivision  of  this  chapter  we  propose  to  discuss 
the  different  kinds  and  general  character  of  the  property  in 
which  Stock-brokers  deal,  and  which  is  comprehended  under 
the  general  name  of  "securities." 

Securities  may  be  divided  into  two  classes — first,  those 
which  are  negotiable  and,  secondly,  those  which  are  not 
negotiable,  and,  as  it  is  of  the  utmost  importance  to  ascertain 


Negotiablo  Securities.  649 

whether  an  instrument  is  negotiable  or  not,  it  being  obvious 
that,  if  it  has  the  former  character,  its  vahie  is  greatly  en- 
hanced, we  have  in  the  second  and  third  subdivisions  of  tliis 
chapter  entered  more  fullv  into  a  discussion  of  the  subject  of 
negotiability  and  non-negotiability  than  perhaps  the  scope 
of  this  work  might  warrant,  confined  as  it  is  to  the  transac- 
tions of  Stock-brokers,  and  the  securities  in  which  they  deal. 
It  will  be  seen  hereafter  that  many  of  the  securities 
classed  as  negotiable,  may,  for  various  reasons,  be,  or  be- 
come non-negotiable,  whilst  on  the  other  hand,  non-negoti- 
able instruments,  may,  under  circumstances,  become  nego- 
tiable, and  the  decided  tendency  of  the  courts  is  to  uphold 
the  usage  of  Brokers  giving  them  that  quality  when  accom- 
panied by  blank  transfers  and  powers  of  attorney  in  blank. 

(a.)  Nefjotiable  Securities. 

The  negotiable  securities  usuallv  dealt  in  on  the  Stock 
Exchange  are : 

1.  United  States  hmds.  These  bonds  ai-e  issued  by  the 
Secretary  of  the  Treasury  under  authority  of  acts  of  Con- 
gress, and  are  negotiable.'  There  is  no  doubt  that  genuine 
Treasury  notes  form  ])art  of  the  negotiable  commercial 
paper  of  the  country;^  and  that  when  the  United  States 
become  parties  to  commercial  paper  they  incur  just  the 
same  responsibilities  as  pi'ivate  persons  under  the  same  cir- 
cumstances.' 

In   Seybel   vs.   Xatioiud  Currency   15ank  '  I'nited  States 

'Cooke    V8.    United     Statos,    12  'United  States  vs.  Hank  of  .Mc- 

Blatchf  4.1.  rev'd  91  U.  S.  .isy.  tropoIi.s,    15    Pet.    377;   The    Floyd 

'  Verrnilye    vs     IOxpn?s«   Co.,    21  .\cc-eptanc-eH,  7  Wall.  (J()0. 

Wall    l.W;  Dinsmorc  vh   Dunnin,  .'57  *  b\  N.  Y.  288. 
N.  Y.  r»7.'l;  Frazer  vs.  D'lnviUiers,  2 
Pa.  St.  200. 


650  Stock-brokers  and  Stock  Exchanges. 

bonds  were  held  to  be  negotiable,  so  that  a  dealer  in  them 
was  not  bound  to  ask  any  questions  whatever  from  one  of- 
fering them  for  sale,  and  that  omission  to  examine  notices 
affecting  them  left  at  his  office  was  not  enough  to  prove  bad 
faith. 

2.  United  States  gold  certificates  are  also  negotiable  in- 
struments.* 

3.  Certificates  of  deposit  of  silver  htdlion  were  admitted 
to  regular  trading  on  the  New  York  Stock  Exchange  about 
the  year  1885.^  In  an  early  case  in  Pennsylvania  these  cer- 
tificates were  held  not  negotiable,  as  they  were  not  for  the 
payment  of  a  certain  sum  of  money,  and  did  not  contain  a 
fixed  time  of  payment.^  Quwre,  however,  whether  these 
certificates  may  not  be  negotiable  under  the  Negotiable 
Instruments  Law,  and  the  usages  of  the  exchange. 

4.  Bonds  of  foreign  governments  or  companies,  also  may 
be  negotiable.     It  is  so  held  of  Prussian  bonds  in  England.^ 

'  Kulb    vs.     United    States,     18  Mortgage     Bank     (London     Joint- 

C.  Cls.  560.  Stock   Bank    vs.   Simmons,    [1892] 

*  Johnson's  Encyclop£edia,  title,  A.  C.  201);  American  Railroad 
"Stock  Exchange."  bonds  (Venables  vs.   Baring,  [1892] 

'Hegemanvs.McCall,  lPhila.529.    3  Ch.   527;    Bentinck    vs.   London 

*  Gorgier  vs.  Milville,  3  B.  &  C.  45.    Joint-Stock  Bank,  [1893]  2  Ch.  120; 
The  following  have  been  also  held    Edelstein  vs.  Schuler,  [1902]  2  K.  B. 

to    be    negotiable:    Spanish    bonds  14-1). 

(Haseltine  vs.  Siggers,  1  Ex.  856);  But  foreign  bonds  to  which  the 

fully  paid  Russian  and  Hungarian  coupon  sheets  are  not  attached  are 

scrip  (Goodwin  vs.  Robarts,  1  App.  not  negotiable.     Picker  vs.  London 

Cas.  476);  unified  Egyptian  bonds,  and  County  Banking  Co.,  18  Q.  B. 

Egyptian    Preference    Government  D.  515. 

bonds,  and  New  South  Wales  bonds  And    from    Lang    vs.    Smith,    7 

(London  vs.  London,  21  Q.  B.  D.  Bing.  284,  it  may  be  inferred  that 

535);    French   bonds    (Symons   vs.  foreign  instruments  are  not  nego- 

Mulkem,  30  W.  R.  875);  Russian  tiable,     unless     negotiable     where 

bonds  (Attorney  General  vs.  Bou-  made.     See  Smith's  Leading  Cases, 

wens,  4  M.  &  W.   171);  mortgage  11th  ed.  (note   to  Miller  vs.  Race) 

bonds  of  the  Buenos  Ayres  Land  vol.  1,  p.  479. 


Negotiable  Securities.  651 

Bonds  are  generally  so  distinctive  and  invariable  that  it 
can  be  said  of  them,  as  a  class,  that  they  are  negotiable.^ 
But  they  are  not  negotiable  unless  they  possess  the  elements 
of  negotiability,  e.  g.,  East  India  bonds ;  -'  but  these  were 
made  so  by  a  statute  passed  in  the  reign  of  George  the 
Third.^ 

5.  Scrip  of  foreign  governments  is  also  negotiable  because 
treated  as  such  in  the  stock  markets.^ 

6.  Municipal  bonds  are  usually  in  negotiable  form  like 
promissory  notes.* 

7.  State  honds.^ 

8.  County  honds? 

9.  City  honds.^ 


'  See  Odell  vs.  Gray,  15  Mo.  337.  Finnegan  vs.  Lee,  18  How.  Pr.  1S6; 

»  Glyn  vs.  Baker,  13  East,  509.  State  vs.  Cobb,  64  Ala.  127. 

'  51  Geo.  III.  c.  64,  §  4.  '  Colson  vs.  Arnot,  57  X.  Y.  253. 

Eiif^lish  E.xchequer  Bills  are  ne-  '  Dutchess,  etc.,  Iiis.  Co.  vs.  Ilach- 

potiable.     Wookey  vs.  Pole,  4  B.  &  field,  73  N.  Y.  226;  Elizabeth  City 

A.  1;  Brandao  vs.  Barnett,  1  M.  &  vs.  Force,  29  N.  J.  L.  587;  Bloom- 

Gr.  909.  ington  vs.  Smith,  123  Ind.  51.     If 

*  Goodwin  vs.  Robarts,  L.  R.  1  the  name  of  the  payee  is  left  blank, 
App.  Ca.s.  467,  followed  in  Rinnl)all  they  are  still  negotiable,  although 
vs.  Metropolitan  Bank,  L.R.  2  Q.  li.  they  state  on  their  face  that  they 
Div.  194;  46  L.  J.  Q.  B.  340;  Shef-  were  intcnfled  to  be  i.ssucd  as  regi.s- 
field  vs.  Bank,  L.  R.  13  .\.  C.  312.  tered,  as  the  requirement  of  rogis- 

But  if  "Bordereaux"  and  "Cou-  tration   was   for  the   purpose  of  a 

pons"  entitling  the  bearer  to  por-  record.     Manhattan   Savings    Inst, 

tions   of    the    public    debt    of    the  vs.  N.  Y.  &c.  Bank,  170  N.  Y.  58. 

kingdom  of  Naples,  do  not  pass  in  When,  however,  city  bond.s  bear 

England  like  money,  they  are  not  upon  their  face  a  statement  that 

negotiable.       Lang     vs.    Smith,    7  they   are   tran.sferable  Only  at   the 

Bing.  284.  ofTice  of  the  city  treasurer,  and  are 

*  See  .\m.  &  Eng.  Ency.  of  Law  made  payable  to  a  named  payee, 
(2d  ed),  vol.  21,  p.  .54,  and  cases  they  are  not  negotiable,  even  al- 
cited.  flioin^h  assigned  l)y  eiuiorsemetit  in 

*. State    of    111      vs.     Dclafield,    H  bhiiik.     Scollans    vs.    Rollans,    173 

Paige,  .527,  afT'd  2  Hill,  1.59;  Rail-  Mass.  275.     But  see  S.  C,  179  Muss, 

road  Cos.  vs.  Schutte,  103  U.  S.  118;  346. 


652  Stock-brokers  and  Stock  Kxcluiiises. 

10.  YiUaye  hands} 

11.  Bailroad  bonds ^^  And  tlie  purchaser  of  such  bonds 
in  open  market  in  the  ordinaiy  course  of  business  is  not 
bound  to  a  close  and  critical  examination  of  them  to  escape 
tlie  imputation  of  bad  laitli.'  In  the  State  of  New  York 
a  railroad  bond  pa3'able  to  bearer  may  be  made  non-nego- 
tiable by  endorsing  thereon  and  subsci-ibing  a  statement 
that  the  same  is  the  property  of  the  owncr.^ 

12.  Coupons.  It  was  a  disputed  point  at  lirst  whether 
coupons  were  negotiable  ;  and  in  the  case  of  Jackson  vs. 
Y.  tfe  C.  Railroad  Co.,°  it  was  held,  against  the  dissenting 
opinion  of  Goodenow,  J.,  that  an  action  could  not  be  main- 
tained by  an  assignee  upon  interest  coupons  not  containing 
negotiable  words.  But  the  Supreme  Court  of  the  United 
States,  in  the  case  of  Comrs.  of  Knox  Co.  vs.  Asjjinwall," 
fully  sustained  their  negotiability,  as  did  the  Supreme  Court 
of  Pennsylvania,"  though  in  both  of  these  cases  the  couj)ons 
were  in  negotiable  terms.  Since  which  time  the  courts 
have  universally  declared  them  negotiable,  if  negotiable  in 
form  and  not  matured.^ 

*  Bank   of  Rome   vs.   Village  of  vol.    23,   pp.    837-840,    and   cases 

Rome,  19  N.  Y.  20.  cited. 

MVelch  vs.  Sage,  47  X.  Y.  143;  ^  Birdsall  vs.  Russell,  29 N.Y.  220. 

Brainard  vs.  N.  Y.,  etc.,  R.  R.  Co.,  *  L.  1871,  ch.  84,  §  1,  repealed  by 

25  X.  Y.  496;  Murray  vs.  Lardner,  the  Xegotiable  Iii.struments  Law  (L. 

2   Wall.  110;  Fisher   vs.  Morris,    3  1897,  c.  712),  §  66    of  which  pro- 

Am.  Law  Reg.  423.  vides  that  an  endorsement  of  a  ne- 

But  if  there  is  uncertaint}^  as  to  gotiable    instrument    may    be    re- 

the  time  of  payment,  they  are  non-  strictive,  thus  (subd.  1)  proliibiting 

negotiable.     Allen  vs.  Choteau,  70  the  further  negotiation  of  the  in- 

Mo.  290.     And  if  the  payee's  name  strument. 

is  inserted,  there  .should  be  an  a.s-  *  48  Me.  147. 

signment  to  enable  the  purchaser  to  '  21  How.  U.  S.  .539. 

sue  in  his  own  name.    Bunting  vs.  ''  Beaver  vs.   Arm.strong,   44   Pa. 

Camden  R.  Co..  81  Pa  St.  254.     See  St.  63. 

.\m.  &  Eng.  Ency.  of  Law  (2d  cd.),  '  Evertson  vs.  Xat.  Bank,  66  X 


Negotiable  Securities.  653 

Coupons  are  in  form  and  terms  nothing  else  than  promis- 
sory notes,  and  their  negotiability  is  a  question  of  \a\v  to 
be  determined  from  the  instruments  themselves,  by  the 
same  fixed  and  well-settled  rules  which  apply  to  promis- 
sory notes  ;  *  and  they  are  entitled  to  days  of  grace,  the 
same  as  promissory  notes,  so  that  a  purchaser  of  them  be- 
fore the  expiration  of  the  days  of  grace  is  a  purchaser 
before  maturity.^  Their  negotiability  is  not  afFected  by 
detaching  them  from  the  bonds,  and  the  holder  may  re- 
cover upon  them  without  producing  the  bonds  ;^  and  yet 
a  coupon  in  the  ordinary  form  is  but  a  repetition  of  the 
contract  which  the  bond  itself  makes  for  the  payment  of 
interest,  and  simply  a  device  for  the  convenience  of  the 
holder  ;  and  is  therefore  so  far  aided  and  protected  by  the 
bond  that  it  was  at  one  time  understood  not  to  be  barred 
by  limitation  unless  the  bond  also  was  so  barred.* 

But  in  the  case  of  Clark  vs.  Iowa  City  ^  the  court  held 
that  when  dissevered  from  the  bond  coupons  wei-e  sul)ject 

Y.  14;  Murray  vs.  Lardner,  2  Wall.  06  X.   Y.    14.     Contra,  .\reiit.s   vs. 

110;   Gelpcke  vs.    Dubuque,    1    id.  Commonwealth,    18    Grattan,   773; 

175;  Meyer  vs.  Muscatine,  1  id.  3S5;  Cliaffee  vs.  R.  R.  Co.,    146  Mass. 

Gilbouj^h  vs.  Norfolk  &  Petersburg  233. 

R.  R.  Co.,  1  Hughes  (U.  S.),  410;  Ud. 

Morris  Canal  &  Bank  Co.  vs.  Lewis,  '  Knox  County  vs.  .\s|)inwali,  21 

12  .\.  J.  Eq.  323;  Same  vs.  Fisher,  How.   (U.  S.)  539;  Beaver  County 

9  id.  667;  and  .see  Green's  Briee's  vs.  Armstrong,  44  Pa.  63;  Thomp- 

Lltra  Vires  (2d  ed),  270,  where  an-  son   vs.  Lee  County,  3  Wall.  327; 

thorities    are    eollerted.     See    also  Daniel  on  Neg.  lasts,  vol.  2,  p.  492. 

Kerr  vs.  City  of  Corry,  105  Pa.  St.  and  ca-se.s  eilod. 

282;  Copper  vs.  Mayer,  44  .\.  J.  L.  'The  City  vs.   Lamsou,  9   Wall, 

63-1;  Gilrnan  VH.  New  Orleans  &c.  R.  477;  Lexington  vs.   Butler,    11   id. 

Co.,  72  .\la.  5C6.     And  sc-e  Am.  &  282;    Reading    vs.    Porter,    2    Par. 

Eng.  Eticy.  of  Law  (2d  ed),  vol.  8,  Rep.  (Cal.)  888;  Meyer  vs.  Porter, 

p.  3,  and  chhcs  cited.  65  Cal    (57. 

'  Jackson  vs.  Y.  «t  C.  R.  Co.,  48  '  20  Wall.  583;  Amy  vs.  Dubuque, 

Me    147;  Spoonor  vh    Iloline^,  210  98  U.  S.  470. 
Mawi   503;  Evertson  vs.  .\at.  Bunk, 


654  Stock-brokers  and  Stock  Exchanges. 

to  the  Statute  of  Limitations,  and  that  it  began  to  run  from 
their  dates.  The  court  said  :  "  Coupons  for  the  different 
instalments  of  interest  are  usually  attached  to  these  bonds 
in  the  expectation  that  they  will  be  paid  as  they  mature, 
however  distant  the  period  fixed  for  the  payment  of  the 
principal.  These  coupons,  when  severed  from  the  bonds, 
are  negotiable  and  pass  by  delivery.  They  then  cease  to 
be  incidents  of  the  bonds,  and  become  in  fact  independent 
claims.  The}'^  do  not  lose  their  validity  if  for  any  cause 
the  bonds  are  cancelled  or  paid  before  maturity,  nor  their 
negotiable  character,  nor  their  ability  to  support  separate 
actions  ;  and  the  amount  for  which  they  are  issued  draws 
interest  from  their  maturity.  Every  consideration,  there- 
fore, which  gives  efficacy  to  the  Statute  of  Limitations 
should  be  applied  to  actions  upon  the  coupons  after  their 
maturity.  .  .  .  All  statutes  of  limitation  begin  to  run  when 
the  right  of  action  is  complete  ;  and  it  would  be  excep- 
tional and  illogical  to  hold  that  the  statute  sleeps  with 
respect  to  claims  upon  detached  coupons,  w^hile  a  complete 
right  of  action  upon  such  claims  exists  in  the  holder.  But, 
if  coupons  not  negotiable  in  form  are  detached  from  the 
bonds,  the  negotiability  of  the  latter  is  not  communicated 
to  them."i 

It  has  been  held  that  where  bonds  and  coupons  issued  to 
bona  fide  holders  for  value  are  valid  by  the  judicial  deci- 
sions of  a  State  when  issued,  their  validity  in  such  hands 
should  not  be  alloAved  to  be  impaired  by  a  change  of  deci- 
sion;^ and  any  such  judicial  oscillation  was  censured  by 

'  Evertson  vs.  Nat.  Bank,  66  N.        '  The  City  vs.  Lamson,  9  Wall. 
Y.    14.     See   also   to   same   effect,    477. 
Koshkonong  vs.  Burton,  104  U.  S. 
668. 


>>£:otial)le  Securities.  656 

the  Supreme  Court  of  the  United  States  in  Gelpcke  vs.  Du- 
buque.- 

In  England  these  coupons  and  interest  warrants  are  held 
to  be  promissory  notes  and  negotiable  according  to  the 
same  rules.^ 

Interest  runs  on  coupons  from  their  maturity' ;  ^  and  al- 
though detached  from  the  bonds,  they  are  still  liens  under 
the  mortgage  given  to  secure  the  same,  whether  the  hold- 
ers are  entitled  to  ap;'o  rata  distribution  or  are  entitled  to 
payment  in  the  order  in  which  the  coupons  fall  due.* 

The  purchaser  in  good  faith  for  value  of  overdue  cou- 
pons from  negotiable  bonds  that  have  been  stolen,  acquires 
no  title  against  the  owner  of  the  bonds,  although  the  bonds 
were  stolen  before  the  coupons  were  due.^ 

13.  Debenture  honds payable  to  bearer.  These  have  been 
held  to  be  negotiable,  if  a  custom  to  that  effect  is  proved, 
although  the  custom  is  of  recent  origin.^     And  a  recent 

'  1    Wall.    175,   20G.     See  also  2  also   Daniel  Neg.  Insts.  §  1513,  et 

Edward.s  on   Bills  and    Notes   (3d  seq. 

ed.),  ch.  XI.  p.  655;  Burrou<:hs  on  *  Green '.s  Brice's  Ultra  Vires,  271. 

Public  Securities,  ch.  XII,  p.  570;  1  Am.  &  Enj;.  Ency.  of  Law  (2d  ed.), 

Southern  Law  Kev.  (Old  Ser.)  189;  vol.  8,  p.  13. 

8  id.  (New  Ser.)  351;  Eaton  k  Gil-  »  Hinckler    vs.    Merchants'  Xat. 

belt's  Commercial  Paper,  §  29,  and  Bank,  Mass.  S.  J.  C.  (April,  ISSl), 

cases  cited.     If  the  coupons  refer,  24   Alb.  L.  J.  4.3G;  131   Ma.>^.  147; 

a.s  to  the  interest,  to  the  bonds  and  Daniel  XeR.   Insts     §§   IKH,  1470, 

mortRaKC  securing  same,  they  are  and  cases  cited, 

not     negotiable.       Mcl.,elland     vs.  •  Beciuianaland   Exjiioration  Co. 

Xorfolk,  110  X.  V.  400.  vs.  London  Trading  Bank,  (IS'.)S)  2 

'  Ex  parte  Colbonie,  L    i{,  11  V.<\.  Q.    B.   0.58.     In   a  prior  ca.se  such 

478;  Ex  parte  City  Bank,  L.  K.  3  Ixmds  were  held  not  negotiable,  es- 

Ch.  App.  7.58.  pccially   when   conditions  were  at- 

'  See   caw^s   collected    in    Green's  t.nciied.     Crouch   vs.   Credit   Jiank, 

Brice'H  Ultra  Vires,   270,  and  also  L.  R.  8  Q.  B.  .374.     But  the  former 

ca«eH  collected  in  Am.  it  Eng,  Ency,  cji.se  held   thai,   the  la.st    cited   cilso 

f>f  Law  (2*\  ed.),  vol.  8,  p.  10.     ,%•(!  was     overruled     !iy     Goodwin     vs. 

UobartH,  1   App.  Coses,  470. 


656  Stock-brokers  and  Stock  Exclianges. 

English  case 'held  that  it  is  not  now  necessary  to  tender 
evidence  that  such  bonds  are  negotiable,  that  being  a  fact 
of  which  the  courts  will  take  judicial  notice. 

1-i.  Share  warrants  to  hearer.  Shares  in  a  company 
transferable  by  share  warrants  to  bearer  are  negotiable.'^ 

(b.)     Kon-negoiiable  Securities. 

1.  Certificates  of  stocl.  Cei-tilicates  of  stock  are  the  cus- 
tomary and  convenient  evidence  of  the  holder's  interest  in 
the  corporation  issuing  it.^ 

They  are  not  regarded  as  negotiable  instruments'*  altliough, 
in  certain  circumstances,  they  may  practically  become  so.'' 

2.  Dividend  warrants.  It  has  been  held  in  England  that 
dividend  warrants  (i.  e.  Bank  of  England  checks  drawn 
upon  its  cashier,  and  payable  to  a  named  payee,  but  with- 
out negotiable  words)  are  not  negotiable.^ 

II.     Negotiability. 

(a.)   Origin  and  Nature  of  Negotiability. 

At  common  law  choses  in  action  Avere  not  assignable,  so 
that  the  assignee  could  bring  an  action  in  his  own  name.^ 
Blackstone's  views  of  a  chose  in  action,*^  '"  tliat  all  property 

'  Edelstein  vs.  Schuler,  (1902)  2  «  Partridge  vs.  Bank  of  England, 

K.  B. 144.  9  Q.  B.  396. 

2  Brodhurst's  Law  of  the  Stock  '  Co.   Litt.   214a,   266a;  Greenby 

Exchange,   p.  81.     Share  warrants  vs.   Kellogg,   2  Johns.    1;   Pitt  vs. 

for  fully  paid  up  shares  are  nego-  Holmes,  10  Cush.  92,  96;  Tiernan 

liable  by  statute.     30  &  31  Vict.  vs.  Jackson,  5  Pet.  580;  Edwards 

c.  131,  §  28.  on  Bills,  55;  Chitty  on  Bills  (*7),  9; 

'  Daniel,    Neg.    Inst.     (5th    ed.)  Eaton    &    Gilbert    on    Commercial 

p.  728.  Paper,    10;    Daniel    on    Negotiable 

^Id.,  p.  726,  and  cases  cited  in  Instruments   (5th  ed.),   1. 

note  1.  "2  BI.  Comm.  397. 

'Id.,  and  cases  cited  in  notes  2 
and  3. 


Origin  aud  Nature  of  Negotiability.  657 

in  action  depends  entirely  upon  contract,  either  express  or 
implied,  \Yhicb  are  the  only  regular  means  of  acquiring  a 
chose  in  action,"  is  now  regarded  as  too  limited.  A  better 
definition  is  given  by  Bronson,  C.  J.,'  who,  adopting  tlie 
distinction  made  by  Bhickstone  between  a  chose  in  posses- 
sion and  a  chose  in  action,  ]M-oceeds  to  define  the  hitter  as 
including  "all  rights  to  personal  property  not  in  possession 
which  may  be  enforced  by  action,  and  it  makes  no  ditfer- 
ence  whether  the  owner  has  been  deprived  of  his  property 
by  the  tortious  act  of  another,  or  by  his  breach  of  contract, 
express  or  implied.  In  both  cases  the  debt  or  damage  of 
the  owner  is  a  thing  in  action." 

Under  the  term  "chose  in  action"  were  included  all  in- 
struments acknowledging  an  indebtedness  or  promising  to 
pay  money.  The  inconvenience  of  this  doctrine  of  non-as- 
signability,  in  a  country  whose  great  aim  was  to  foster  and 
encourage  commerce,  w;is  snflicient  to  condemn  it ;  and  we 
find  the  courts  very  earW  recognizing  a  custom  of  mer- 
chants bv  which  bills  of  exchan<>:e  were  made  "negotiable" 
— that  is,  they  could  be  transferred,  and  the  hokhn-,  en- 
dorsee, or  assignee  might  enforce  payment  of  the  same  in 
his  own  name.^ 

'  Gillet  vs.  Fairchild,  4  Den.  80.  Grover,    24    Pick.    261;    Pitt    vs. 

'In   Thoinp.son   v.s.    Doininy,    14  Hdlmos,  10  Cii.sli.  92,  97;  .\mhcrst 

•M.  &  W.  40.3,  407,  Parkp,  H.,  said:  Ac-adciny  v.s.  CowLs,  0  Pick.  427); 

"  I  never  heard  it  arj^ued  tliat  a  con-  and  the  as.sifi;nor  acting  in  folin.sion 

tract  wa-s  traii.sferaljle  except  by  tlic  with  the  debtor  could  not  witlidraw 

law  merchant."    .\nd,  sjMjakinK  of  a  .such  a  suit  so  a.s  to  bar  a  similar 

bill  of  lading,  he  a<lded:  "It  trans-  suixsequent    suit    by    the    aMsigneR 

fers  no  more  than  the  property  in  (Welch    vs.    .Miindeville,    1    Wheat, 

the  nood«;  it  does  not  transfer  the  ?:V.i,  afT'd  f)  id.  277).     The  ri^ht  of 

contract."  iho  HKsinnce  to  use  the  uRsiirnor'a 

The  HHsif^oc  of  a  clmw;  in  a<-tion  name   is   incidental    to   the   a.ssii;n- 

could  maintain  an  action  at  law  in  meni,  ax  Morton,  .1  ,  said,  in  Kiust- 

the  name  of  tin- a.K«innor  (CJrover  VH.  man  vs.  Wright,  (I  Pi«'k.  31(i,  322: 

42 


658 


Stock-brokers  and  Stock  Exclians^es. 


A  negotiable  instrument  is  a  chose  in  action  even  before 
maturity,  anu  may  be  transferred  by  assignment  in  the 
same  manner  as  an  ordinary  chose  in  action  ;  and  if  payable 


"The  assignor,  by  the  assignment, 
gives  authority  to  the  assignee  to 
use  his  name  in  any  legal  proceed- 
ings which  may  become  necessary 
to  give  full  effect  to  the  assignment. 
The  assignor  becomes  the  trustee  of 
the  assignee,  and  a  release  made  by 
him  after  notice  of  the  assignment 
would  be  a  fraud  upon  the  assignee, 
and  would  not  defeat  an  action 
brought  for  the  benefit  of  the  latter 
in  the  name  of  the  former." 

In  a  court  of  equity  the  assignee 
of  a  chose  in  action  could  always 
sue  in  his  own  name,  irrespective  of 
any  promise  by  the  debtor  to  pay 
him  if  he  had  no  remedy  at  law 
(Lett  vs.  Morris,  4  Sim.  607;  Row 
vs.  Dawson,  1  Ves.  Sen.  331).  In 
the  case  last  cited  the  Lord  Chan- 
cellor said:  "And  though  the  law 
does  not  admit  an  assignment  of  a 
chose  in  action,  this  court  does,  and 
any  words  will  do."  See  also  En- 
sign vs.  Kellogg,  4  Pick.  L  If  the 
assignee  could  enforce  his  legal  de- 
mand, he  was  left  to  his  action  at 
law  in  the  name  of  the  assignor;  but 
if  the  latter  refused  to  allow  him  to 
use  his  name,  or  otherwise  acted  in 
collusion  with  the  debtor,  then^ 
upon  sufficient  facts  shown,  equity 
would  allow  the  assignee  to  sue  in 
his  own  name  (Ontario  Bank  vs. 
Mumford,  2  Barb.  Ch.  596;  Carter 
vs.  United  Ins.  Co.,  1  Johns.  Ch. 
463;  Hammond  vs.  Messenger,  9 
Sim.  327). 

It  is  provided  by  the  English  Ju- 
dicature Act  (1873,  §  25,   subd.   6) 


that  a  debt  or  other  legal  chose  in 
action  may  be  assigned  so  that  the 
a.ssignee  shall  have  the  same  reme- 
dies thereon  as  the  assignor,  but 
subject  also  to  all  equities,  at  least 
to  the  extent  of  the  assigned  obliga- 
tion (Young  vs.  Kitchin,  L.  R.  3 
Ex.  D.  127). 

In  the  State  of  Xew  York  an  ac- 
tion may  be  maintained  by  the 
transferee  of  a  claim  (Code  Civ. 
Proc.  §  1909)  but  certain  claims  are 
not  assignable  (§  1910).  See  cases 
cited  in  notes  appended  to  these 
sections  in  Stover's  Anno.  Code  (5th 
ed.),  and  Bliss's  Anno.  Code  (5th 
ed.).  And,  no  doubt,  in  most  of 
the  States,  an  assignee  of  a  chose  in 
action  inaj^  sue  in  his  own  name, 
either  by  force  of  statute  or  of  es- 
tablished usage.  Cox  vs.  Sprigg,  6 
Md.  274;  Smith  vs.  Schibel,  19  Mo. 
140;  Long  vs.  Constant,  id.  320; 
Cobb's  Dig.  (Ga.)  519;  Prioleau  vs. 
South  W.  R.  Bank,  16  Ga.  582; 
Worthington  vs.  Curd,  15  Ark.  491. 
In  Allen  vs.  Brown  (44  N.  Y.  228), 
Hunt,  C,  referring  to  §§111  and 
113  of  X.  Y.  C.  of  P.,  from  which 
sections  1909-10  of  the  present 
Code  are  derived,  says:  "These  pro- 
visions are  intended  to  abolish  the 
common-law  rule  which  prohibited 
an  action  at  law  otherwise  than  in 
the  name  of  the  original  obligee  or 
covenantee,  although  he  had  trans- 
ferred all  his  interest  in  the  bond  or 
covenant  to  another."  See  Eaton 
tt  Gilbert's  Commercial  Paper,  §  8. 


Origiu  and  Nature  of  Negotiability.  659 

to  order  and  transferred  witliout  endorsement  by  parol  and 
manual  delivery  only,  the  transferee  acquires  only  the  rights 
he  would  have  had  had  the  instrument  been  orii^nnally  ni)n- 
negotiable — i.  e.,  the  rights  of  the  payee  at  the  time  of  the 
transfer,* 

In  Freund  vs.  Importers,  etc.,  Bank-  the  payee  of  a 
check  payable  to  order  transferred  it  to  B  without  endorse- 
ment, and  it  was  held  that  he  thereby  became  the  lawful 
assignee  and  owner  of  it,  and  entitled  to  have  and  enforce 
payment  from  the  bank  which  had  certified  it,  but  that  he 
had  no  greater  right  than  he  would  have  had  if  it  had  been 
originally  non-negotiable.^ 

It  would  not  be  profitable  to  enter  into  an  abstract  in- 
quiry as  to  the  meaning  of  the  \vord  negoiUiUe,  based  either 
upon  its  etymology  or  history.  It  has  no  specially  interest- 
ing or  valuable  history  apart  from  its  somewhat  technical 
use  as  a  word  of  commerce.  The  meaning  of  the  original 
Latin  word  neyotiuni  is  husifiess,^  and  indicates  that  a 
negotiable  instrument  should  relate  to  and  facilitate  business 
affairs ;  the  past  and  present  use  of  the  word  negotiaUe  is 
therefore  quite  in  liarmony  with  its  literal  import,'  and  we 

'    Negotiable    Instruments    Law,  *  Andrew's  Frcund's  Latin  Diet. 

§  60  et  seq.  '  rriniurily  the  word  nejr<itial)ility 

'  76  X.  Y.  3.52.  means  the  eapabiUty  of  being  nego- 

'  Whistler  vs.  Forster,  14  C.  li.  (n.  tiated—that  is,  transferretl  liy  en- 

8.)  248.     Therefore,  if  the  holder  of  dorsement   and   delivery   so   as   to 

a  bill  payable  to  bearer  as.signs  it  by  give  the  endorsee  a  right  of  action 

deed  to  D.,  and  afterwards  transfers  on  the  negotiated  iu.struinent,  in  his 

it  liy  dehvery  to  E,  who  takes  it  for  own   name —and   is   nothing  njoro; 

value  and  without  notice,  E.'s  title  therefore,  an  in.strument,  e.  g.,al>ill 

prevails  over  D.'s  (.Vulton  vs.  .Vt-  of  lading,  may  l)e  made  negotialjlo 

kins,  ISC.  B.  249);  but  if  K.  had  no-  by  a  statute  or  declared  to  l)e  so  by 

tice    of    the    prior    assignment,    it  a  court,  and  yet  its  negotiation  may 

would    be    sustained    (Sheldon    vs.  not  l»e  attendetl  with  all  the  conso- 

I'arker,   3   Hun,   498).     See   Eaton  <nu'ncc!s  and  effects  which  generally, 

k  fiilljert's  Com.   Paper,   \  09.  but  not  always,  result  from  tlie  ne- 


6(30  Stock-brokers  and  Stock  Exchaiiffos. 

may  at  onee  proceed  to  state  the  accepted  definition  of  a 
negotiable  instrument  as  a  loritten promiae^  order,  or  reqaent 
for  the  payment  of  a  certain  sum  of  'nioneij  to  A,  or  order,  or 
hearer^  a  definition  which  was  (as  to  promissory  notes)  sub- 
stantially adopted  hy  and  iniplitnl  in  the  New  York  Revised 
Statutes,'^  which  enacted  that  "  all  notes  in  w^-iting  made  and 
signed  by  any  person  whereby  he  shall  j)romise  to  pay  to  any 
other  person  or  his  order,  or  bearer,  any  sum  of  money 
therein  mentioned,  shall,  etc.,  and  shall  have  the  same  effect 
and  be  nejrotiable  in  like  manner  as  inland  bills  of  ex- 
change,  according  to  the  custom  of  merchants." 

This  provision  was  taken  without  material  change  from 
3  and  4  Anne,  c,  9,  the  preamble  of  which  recites  that  it 
had  been  held  that  promissory  notes  were  not  endorsable 
over  like  bills  of  exchange.^  This  act  contains  several  items 
of  internal  English  history  pertinent  to  the  subject  now  un- 

gotiatiou  of  bills  and  notes  (Shaw  tliat  an  instrument   "is  called  ne- 

vs.  Railroad  Co.,  11  Otto,  557,  563).  gotiable  when  the  legal  title  to  the 

'  The  definition  of  a  negotiable  instrument  itself,  and  to  the  whole 
instrument  in  the  text  has  been  amount  of  money  expressed  upon 
adopted  in  California  (Code,  §  3087)  its  face,  may  be  transferred  from 
as  to  six  kinds  of  negotiable  instru-  one  to  another  by  indorsement  and 
ments,  viz.,  bills,  notes,  bank  notes,  delivery  by  the  holder,  or  by  de- 
checks,  bonds  and  certificates  of  liverj' only.'' 
deposit.  The  Negotiable  Instruments  Law 

The  following  definition  of  nego-  (§  20),  sets  forth  the  requirements 

tiablc     instruments     is     given     in  necessary  to   make  an    instrument 

Black's  Law  Dictionary,  title  "Ne-  negotiable. 

gotiable  Instruments:"  "Any  writ-  ^  1  Rev.  Stat.  768,  §  1;  R.  S.  pt. 

ten  securities  which  may  be  trans-  II.  ch.  4,  tit.  II.  §  1.     Repealed  by 

ferred  by  indorsement  and  deUvery,  the    Negotiable    Instruments    Law 

or  by  delivery  merely,  so  as  to  vest  (L.    1897,   c.   612),    §  20   of   which 

in  the  indorsee  (or  holder)  the  legal  makes  provision  as  to  the  form  of  a 

title,  and  thus  enable  him  to  sue  negotiable  instrument, 

thereon  in  his  own  name."  '  Referring,    it    is    supposed,    to 

In  Daniel  on  Negotiable  Instru-  Clerke  vs.  Martin,  2  Ld.  Raym.  757. 
ments   (5th  ed.),    §  1,  it  is  stated 


Origin  and  Nature  of  Negotiability.  Gt!l 

der  examination:  1.  That  prior  to  it  (1704)  j)romissory 
notes  were  not  negotiable  ;  2.  That  bills  of  exclian*re  were: 
3.  That  such  negotiability  luul  its  origin  in  the  custom  of 
merchants.^ 

AVhen  this  custom  was  established  is  not  precisely  known. 
Daniel  says^  (citing  Anderson's  History  of  Commerce,  vol. 
1,  c.  361),  "There  is  reason  to  believe  that  bills  of  ex- 
change were  known  in  England  as  early  as  1307,  since  in 
that  year  King  Edward  I.  ordered  certain  money  collected 
in  England  for  the  Pope,  not  to  be  remitted  to  him  in  coin 
or  bullion,  but  by  way  of  exciiange  (per  viam  Canibiij."' 
And  Chitty  ^  says  that  the  statutes  show  that  bills  of  ex- 
change (foreign)  were  in  use  by  English  merchants  as  early 
as  tiie  middle  of  the  fourteenth  century,  but  that  there  is  no 
mention  of  them  in  the  law  reports  until  the  time  of 
James  I.* 

Inland  bills  of  exchange  came  into  use  somewhat  later, 
it  is  said,  and  did  n(jt  come  before  the  courts  until  the  case 
of  Chat  vs.  Edgar,'^  which  was  within  the  memory  of 
Lord  Ilolt.*  They  were  at  first  regarded  Avith  great  dis- 
favor by  the  courts  and  their  use  restricted  to  merehaiits  ;^ 
but,  by  the  statutes  of  Anne'^  and  AVilliam  III.,'  they 
were  placed  substantially  on  the  same  footing  as  foreign 
bills. 

Promissory  notes  were  not  introduced  into  England  until 
about   the  middle  (jf    the   seventeenth   centuiy,  oi*  perhaps 

'See   Richards  vs.   Warrintr,  IV.)       *  Hiillf-r  vs.  Crips  (»  Mod.  20. 

Barb.  42,  10.  '  Hroniwick  v.s,  l.nyd,  2  Lut.  15S2 

'  .\«'«.  In«.  (fith  ed.)  p.  1.  SF,. 

'  Hill.s  of  Ex.  (*11)  If).  "  .3  it   I  .Vni.c,  <•    <t 

♦.Martin    vh.     Howie,    2    Croke's        ••.)  it  10  Williaiii  III.  c.  17. 
licp.  ()  nO.Imv  1), 

'  1  Kr-I..  (i.Ki,  ill  io:j«. 


662  Stock-brokers  and  Slock  Exchanges. 

somewhat  later.     They  had  been  previously  in  use  upon  the 
continent  of  Europe.' 

(h.)  Ifnw  Negotiahilit  1/  may  he  Eafahlhhed. 

As  the  doctrine  of  the  negotiability  of  bills  of  exchange 
was  first  established  by  the  custom  of  merchants,  some  pass- 
ing observations  upon  these  customs,  and  their  force  and 
effect  in  the  law,  will  not  be  out  of  place. 

The  law-merchant  consists  of  those  general  customs  of 
merchants  which  have  received  the  sanction  of  judicial  de- 
cisions, and  are  thereby  recognized  as  binding  and  authorita- 
tive. Thus  Lord  Campbell  says  ^  that,  "  when  a  general 
usage  has  been  judicially  ascertained  and  established,  it  be- 
comes part  of  the  law-merchant  which  courts  of  justice  are 
bound  to  know  and  recognize."'  Quite  in  harmony  with  this 
authority  is  the  judicial  exposition  of  Foster,  J.,^  where  he 
says :  "  But  the  custom  of  merchants,  or  hiw  of  merchants, 
is  the  law  of  the  kingdom,  and  is  part  of  the  common-law  ; " 
and,  again  (referiing  to  two  cited  cases),  "  therefore  these 
judicial  determinations  of  the  point  are  the  lex  inercatoria 
as  to  this  question,  which  is  part  of  the  law  of  tiie  land. 
But  this  finding  of  the  jury  in  the  present  case  is  directly 
contrary  to  the  lex  niercatoria  so  fully  settled  and  estab- 
lished by  legal  adjudications." 

Thus  the  law-merchant,  being  made  up  of  venerable  and 
solemnized  customs,  according  to  some  authorities,  prevails 
over  any  modern  usage,  and  to  a  large  extent  over  the  ex- 
press  stipulation   of   parties.     As  Blackburn,   J.,   says   in 

•Daniel  on  Nep.  Ins.  (5th  ed.)  *  Brandao  vs.  Bamett,  3  C.  B. 
p.  5;  Strong  on  Notes,  §  6;  Buller   519,  530. 

vs.  Crips,  6  Mod.  29.  ^  Edie  vs.  East  India  Co.,  2  Burr. 

1216,  1226,  1228. 


How  Negotiability  may  be  Established.         6G3 

Crouch  vs.  Credit  Foncier,'  "  There  is  no  decision  or 
authority  that  it  is  competent  to  a  party  to  create  by  his 
own  act  a  transferable  right  of  action  on  a  contract ; "  and 
again,  "  "Where  the  incident  is  of  such  a  nature  that  the 
parties  are  not  themselves  competent  to  introduce  it  by  ex- 
press stipulation,  no  such  incident  can  be  annexed  by  the 
trial  stipulation  arising  from  usage.  //  may  he  so  annexed 
hy  the  ancient  laio-merchant,  which  forms  part  of  the  law, 
and  of  which  the  courts  take  notice.  Xor  if  the  ancient 
law-tnercliant  annexes  the  incident  can  anv  modern  usasre 
take  it  away."  But  it  is  very  doubtful  whether  the  courts 
at  the  present  day  will  carry  the  le:c  mercatoria  to  such  an 
extent  as  this  language  seems  to  contemplate.^  And  we 
find  the  definition  of  the  law-merchant  wliich  we  have 
given  above  adopted  almost  verbatim  by  Cockburn,  C.  J., 
in  a  case  where  the  doctrine  of  negotiability  was  established 
by  the  custom  of  13ank(^r  and  Brokers.^  "  It  is  neither 
more  nor  less  than  the  usages  of  merchants  of  trade,  ratified 
by  the  decisons  of  courts  of  law,  which,  upon  such  usages 
being  proved  before  them,  have  adopted  them  as  settled  law 
with  a  view  to  the  interests  of  trade  and  the  ])ublic  conven- 

*  L.  R.  8  Q.  B.  374,  3SG.  portation  Co.  vs.  London  Trading 

*  See  chapter  on  "Usages."  Bank,  2  Q.  B.  D.  058.     In  that  ciuio 
Since  the  text  wa.s  written  it  has   the  plaintiff's  secretary  fraudulently 

been  held  that  the  doctrine  enun-  abstracted  certain  bearer  debenture 
ciated  in  Crouch  vs.  Cr<!;dit  Foncier,  bonds  from  plaintiff's  safe  and 
supra,  was  overruled  by  the  de-  pledged  them  with  defendant  i)ank, 
cisions  in  Goodwin  vs.  Hobarts,  who  in  pood  faith,  advanced  money 
Hupra,  and  Rumball  vs.  Motropoli-  thereon,  and  it  was  held  that  the 
tan  Bank,  2  Q  B  I).  191,  and  that,  defendants  were  entitled  to  hold  the 
as  there  w!is  sufficient  proof  of  a  boiuls  as  they  were  nc>;otiablo  in- 
mercantile  u.saKe  to  treat  debenture  struments  passinR  by  delivery.  Id. 
bonds  payable  to  bearer  as  ncRo-  '  GocKlwin  vs.  Hobarts,  L.  H.  10 
liable,  the  latter  flecisions  should  bo  Ex.  337,  310. 
followed        B«-chuanalarid     Trans- 


0G4  Stock-brokers  and  Stock  Kxchauj^es. 

ience.  .  .  .  I>y  this  process,  what  before  was  usage  only, 
unsanctioned  by  legal  decision,  has  become  engrafted  upon 
or  incorporated  into  the  common-law,  and  may  thus  be 
said  to  form  part  of  it/'  And  in  "Williams  vs.  WiUiams^ 
the  endorsee  of  a  })romissory  note  having  declared  on  the 
custom  of  mcrehanifi,  it  was  objected  that,  the  note  having 
been  made  in  London,  the  custom,  if  any,  should  have  been 
laid  as  the  custom  of  London  ;  but  the  courts  answered 
"  that  this  custom  of  merchants  was  part  of  the  common- 
law,  and  the  courts  would  take  notice  of  it  ex  officio,  and 
therefore  it  was  sufficient  to  say  that  such  a  person,  secun- 
dum usiwi  et  coiisuctudinem  tnercatorum,  drew  the  bill," 

So,  in  a  case  in  the  State  of  New  York,  the  Court  of  Ap- 
peals held  that  the  courts  will  take  judicial  notice  of  the 
general  course  of  business  in  a  community,  including  the 
universal  practice  of  banks.^ 

It  is  interesting  to  notice  with  what  jealousy  this  custom 
of  merchants  was  regarded  by  the  courts,  and  ev^en  Lord 
Holt  was  provoked  by  its  aggressive  influence  to  exclaim 
"  that  it  amounted  to  the  setting-up  of  a  new  sort  of  spe- 
cialty unknown  to  the  common-law,  and  invented  in  Lom- 
bard Street,  which  attempted  in  these  matters  of  bills  of 
exchange  to  give  laws  to  Westminster  Ilall."  ^  There  is  no 
doubt  that  the  judges  were  at  that  time  intent  in  restrain- 
ing the  attempted  aggressions  of  the  merchants  ;  for  Lord 
Mansfield,  in  Grant  vs.  \^aughan,^  speaks  of  the  "  first 
struggle  of  the  merchants  which  made  Holt  so  angry  with 
them." 

In  more  modern  times  we  also  find  striking  examples  of 

•  Carth.  269.  •'  Clerke  vs.  Martin,  2  Ld.  Raym. 

'  Merchants'  Nat.  Bank  vs.  Hall,    757. 
83  X.  Y.  338.  ■■  1  W.  BI.  485,  487. 


How  Negotiability  may  be  Established.         005 

the  disposition  of  courts  to  act  as  conservators  of  legal  prin- 
ciples when  they  are  imperilled  by  encroaching  customs  and 
innovations.  Thus  in  Donnell  vs.  Columbian  Ins.  Co.,' 
Story,  J.,  says  :  "  I  am  among  those  judges  who  think 
usages  among  merchants  should  be  very  sparingly  adopted 
as  rules  of  court,  ...  as  they  are  often  founded  in  mere 
mistake,  and  still  more  often  in  the  want  of  enlarged  and 
comprehensive  views  of  the  full  bearing  of  principles,"  and 
in  The  Keeside-  he  "  rejoices  to  find  that  of  late  years  the 
coui'ts  of  law,  both  in  England  and  America,  have  been  dis- 
posed to  narrow  the  limits  of  the  operation  of  such  usages, 
and  to  discontinue  any  further  extension  of  them  ;  "  ^  and 
Stone,  J.,  another  American  judge,  uttered  the  warning 
that  "  it  became  us  to  feel  our  way  cautiously,  lest  there 
grow  up  in  our  midst  some  third  estate  (of  customs  and 
usages)  which  shall  in  time  usurp  the  government."* 

In  Dykers  vs.  Allen  ^  Senator  Wright  remarks,  with  some 
asperity,  that  "  to  allow  the  usages  of  "Wall  Street  to  con- 
trol the  general  law  in  relation  to  any  matter  might  result 
in  the  establishment  of  [)rinciples  not  always  in  accordance 
with  sound  morals.  I  prefer  that  legal  ])rinciples  should 
have  a  universal  application,  and  that  contracts  should  re- 
ceive the  same  interpretation  in  the  lhr()nge<l  and  busy 
mart  of  a  commercial  metropi^lis  that  they  do  clsrwlu'i-e." 
"Whatever  may   have  been  the  spirit  in  which   these  ani- 

'  2  Sumn.  .307.  vs.  Pound,  10  Iiid.  32;  \>y  IVrkins, 

» Id.  .507.  J.,  in  Cox  vs.  O'Uiley,  4  id.  308;  and 

'  Similarly  plain  and  pertinent  ex-  hy  .Miller,  J  ,  in   Partridpe  v.s.  Ins. 

prcasioiiM  of  judicial  critici.sni  were  Co.,  1.')  Wall.  .'>73,  .W). 

ma<le  by  Gibwjri,  C.  J.,  in  Bolton  v.s  *  Hariuw    vs     I.amhert,    2S    .Ma. 

Colder,  1  Watt.s,  .30f);  l»y  Til-ilinian,  7(11 

C.   J  ,   in   Stoever   vs.    Whitman,    0  '7  Hill,   VM. 

Binn.  110;  by  .Stuart,  J.,  in  Ilaqx-T 


006  Stock-broktrs  juul  Slock   Fxchaiiffes. 

madversions  were  made,  it  should  be  observed  that  they 
^vero,  for  the  most  part,  directed  against  local  customs  and 
limited  usages.  But  the  ])o\ver  of  the  judges  has  been 
futile  in  arresting  the  usages  or  customs  of  trade,  even 
when  confined  to  certain  localities  and  to  particular  occu- 
pations ;  and,  as  appears  by  the  leading  case  of  Goodwin 
vs.  Robarts,'  the  usages  of  Stock-brokers  and  Bankers  have 
been  successfully  invoked,  even  to  confer  upon  instruments 
the  powers  of  negotiabilit3\^ 

If  the  orisrinal  law-merchant  had  been  a  fixed  and  stereo- 
typed  system  incapable  of  expansion,  the  negotiability  of 
commercial  paper  -would  have  ended  where  it  began,  -with 
bills  of  exchange,  or,  more  accurately,  with  foreign  bills  of 
exchange.  Such,  however,  was  not  its  character,  and  could 
not,  and  cannot  be,  in  tlie  very  nature  of  things,  because 
regulations  for  public  convenience  Avhich  are  sufficient  for 
the  wants  of  one  generation  are  not  fully  adapted  and  ade- 
quate to  the  changed  and  multiplied  wants  of  another. 
Lord  Holt,  indeed,  attempted  to  stop  the  growth  of  the 
law-merchant  and  to  exclude  ]iromissory  notes  from  its 
operation;-  but  the  British  Parliament  took  sides  with 
the  merchants  and  passed  3  and  4  Anne,  ch.  0,  and  admit- 
ted notes  to  a  substantial  equality  with  bills.  Later  on  in 
English  history,  a  similar  attempt  ended  with  a  similar  re- 
sult ;  the  decision  in  Glyn  vs.  Baker,^  that  East  India 
bonds  were  not  negotiable,  was  followed  by  the  immediate 
passing  of  51  Geo.  III.  ch.  64,  by  which  such  bonds  became 
transferable  by  delivery. 

» L.  R.  10  Ex.  337.  ^  Gierke  vs.  Martin,  2  Ld.  Ra}'m. 

*  See   this   question    further   dis-  7.57. 

cussed    in    chapter    on    "Usages,"  M 3  East,  509. 
p.  411. 


How  Negotiability  may  be  Established.         067 

So  also,  when  the  circulating  qualities  of  bank-notes  came 
to  be  judicially  examined  in  Miller  vs.  Race,^  Lord  Mans- 
field said,  "  They  are  treated  as  money  in  the  ordinary 
course  and  transactions  of  business  by  the  general  consent 
of  mankind.''  which  was  clearly  a  case  of  a  universal  usage 
receiving  judicial  sanction. 

And  in  Goodwin  vs.  Eobarts,  already  cited,  Cockburn, 
C.  J.,  after  showing  by  abundant  illustration  to  what  a 
broad  scope  it  has  expanded  in  the  present  day,  asks,  with, 
great  force,  "  Why  is  the  door  to  be  now  shut  to  the  admis- 
sion and  adoption  of  usage  in  a  matter  altogether  of  cog- 
nate character,  as  though  the  law  had  been  finally  stereo- 
typed and  settled  by  some  positive  and  peremptory  enact- 
ment ? "  "Whenever,  and  as  fast  as,  new  instruments  are 
required,  it  is  safe  to  predict  that  they  will  come  into  use; 
custom  will  adopt  them,  and  then,  in  its  turn  and  in  the  ful- 
ness of  time,  the  custom  Avill  receive  the  sanction  of  the 
law.  In  this  very  case  we  have  a  most  instructive  example 
of  the  manner  in,  and  the  conditions  upon,  which  custom 
adds  to  the  number  of  negotiable  instruments.  The  subject 
of  litigation  was  scrip  of  the  Russian  government  issued  in 
England,  by  which  that  government  promised  not  to  pay 
money,  but  to  give  certain  bonds.  This  scrip  wjis  unlaw- 
fully pledged  by  one  not  the  owner,  and  then  sold  by  the 
pledgee  to  a  honajide  purchaser.  The  contention  on  bchall" 
of  the  owner  was  that  scri])  of  this  description  not  coming 
un<l(.'r  the  category  of  any  of  the  securities  foi*  ihoney  which 
by  the  law-merchant  are  capable  of  being  transferrcil  by 
endorsement  and  delivery,  and  not  being  a  security  for 
money  at  all,  but  only  for  the  futun,- delivery  of  a  bond,  the 

•  1  burr.  1.32,  1.07. 


G68  Stock-brokers  and  Stock  Exchanges. 

rights  of  the  true  owner  could  not  be  divested  by  the  fraud- 
ulent transfer  of  the  chattel  b}'  a  person  who  had  no  title 
as  against  the  owner.  Cockburn,  C  J.,  in  rendering  judg- 
ment, said  :  "The  ninth  paragraph  of  the  special  case  con- 
tains the  following  statement,  upon  which,  as  it  appears  to 
us,  the  decision  of  the  case  turns :  The  scrij)  of  loans  to 
foreign  government,  entitling  the  bearer  to  bonds  for  the 
same  amount  when  issued  by  the  government,  has  been 
well  knoAvn  to,  and  largely  dealt  in  bv,  bankers,  money 
dealers,  and  the  members  of  the  English  and  foreign  Stock 
Exchanges,  and  through  them  by  the  public,  for  fifty  years. 
It  is  and  has  been  the  usage  of  such  bankers,  money -dealers, 
and  Stock  Exchanges,  during  all  that  time,  to  buy  and  sell 
such  scrip,  and  to  advance  loans  of  money  upon  the  securitj'' 
of  it  before  the  bonds  were  issued,  and  to  pass  the  scrip 
upon  such  dealing  by  mere  delivery  as  a  negotiable  instru- 
ment transferable  by  delivery  ;  and  this  usage  has  always 
been  recognized  by  the  foreign  government,  or  their  agent, 
delivering  the  bonds  when  issued  to  the  bearers  of  the 
scrip." 

The  very  serious  point  made  by  the  plaintiff,  that  the 
scrip  was  not  negotiable  because  it  was  not  a  promise  to 
pmj  money^  but  to  deliver  a  bond,  Avas  disposed  of  as  fol- 
lows :  "  We  think  that  substantially,  and  in  effect,  it  is  a 
security  for  money^  which  till  the  bond  shall  be  delivered 
stands  in  the  place  of  that  document,  which,  when  delivered, 
will  be  beyond  doubt  the  representative  of  the  sum  it  is  in- 
tended to  secure.  .  .  .  The  usage  of  the  money  market  has 
solved  the  question  whether  scrip  should  be  considered  se- 
curity for,  and  the  representative  of,  money,  by  treating  it 
as  such." 


How  Noijotiability  may  be  Established.         6G9 

In  Crouch  vs.  Credit  Fonciei*/  which  is  in  contrast  with 
the  last  case,  but  not  inconsistent  with  it  in  its  main  feature, 
we  lind  an  example  of  the  judicial  rejection  of  a  usage  be- 
cause, if  admitted  to  exist,  it  was  recent,  and  because  an  in- 
cident Of  attribute  of  negotiability  could  not  be  annexed  to 
an  instrument  bv  the  tacit  stipulation  of  such  a  usage  which 
coulil  not  be  introduced  into  it  by  the  express  stipulation 
of  the  parties. 

But  in  Yenables  vs.  Baring,^  decided  in-  the  year  1892,  it 
was  held  that  American  railroad  bonds,  payable  to  bearer, 
were  ne<?otiable  accordinir  to  the  law  merchant.  And  in 
the  later  case  of  liechuanaland  Exploration  Co.  vs.  London 
Trading  Bank ^  it  was  held  that  English  debenture  bearer 
bonds  were  negotiable,  if  a  custom  to  that  effect,  although 
of  recent  origin,  was  proved. 

The  recent  case  of  Edelstein  vs.  Schuler^  went  further  and 
held  that  the  time  had  passed  Avhen  the  negotiability  of 
bearer  bonds  could  be  called  in  question  ;  the  existence  of 
the  usage  to  ti'cat  them  as  negotiable  had  been  so  often 
proved,  and  its  convenience  was  so  obvious,  that  it  must  be 
now  taken  to  be  ])art  of  the  law-merchant ;  and  accordingly 
it  was  not  now  necessary  to  tender  evidence  to  prove  that 
such  bonds  were  negotiable  instruments,  that  being  a  fact 
of  which  the  court  will  take  judicial  notice.  In  that  c;ise 
the  bonds  consisted  of  South  African  Kailroad  and  Mining 
bonds,  and  American  Kaili-oad  Bonds. 

There  may  be  also  nog(jtiability   by  estop|)cl.     Tl (feet 

'  L.    R.    S  Q.    n    .374,  overruled  '  (1.S92)  3  C'h.  527. 

by    GcKxJwn    vh.    Roharts,    supm;  '  (ISOK)  2  Q   H.  H.'iM. 

Iiec-hu;inalnrnl   Kxplorutiod  Co.   v«.  «  (1{K)2)   2    K.  I»    IIJ      Soo  iirti- 

Ixiriflon  TnuJing  Hank,  id.  (1S98)  2  <l«-.s   in    l.'i    I.onildii    l^imrlcrly    lie- 

Q    B.  D.  CW.  view,  UH),  2I.'». 


670  Stock-brokers  and  Stock  Exchanges. 

of  the  decisions  in  Goodwin  vs.  Robarts  and  Ruraball  vs. 
Metropolitan  Bank,  mijjra,  seems  to  be,  tliat  if  one  deposits 
Avith  an  agent  a  security  on  the  face  of  it,  payable  to  bearer, 
he  cannot  recover  it  from  a  bona  fide  holder  for  value,  in 
case  the  agent  fraudulently  puts  it  into  circulation,  whether 
the  instrument  is  negotiable  or  not.* 

But  usage  cannot  make  instruments  on  the  face  of  which 
the  right  to  sue  is  limited,  negotiable. 

Thus  in  Glyn  vs.  Baker- (decided  before  the  passing  of  the 
Act  of  51  Geo.  3,  c.  64,  §  4,  making  India  bonds  negotiable),  it 
would  aj)peHr  from  the  judgment  of  the  court  that  even  if  the 
jury  had  found  the  India  bond  to  be  negotiable,  it  could  not 
have  been  made  so  in  contemplation  of  law,  as  it  appeared 
on  its  face  to  be  payable  to  the  original  obligee,  thus  limit- 
ing the  right  to  recover  its  amount  to  the  latter  or  his  rep- 
resentatives. 

This  was  accepted  as  a  correct  statement  of  the  law  in 
Partridge  vs.  Bank  of  England.^  In  that  case  the  plea  was 
that  dividend  warrants,  i)ayable  to  a  specific  person,  with- 
out negotiable  words,  were,  by  a  sixty  years'  custom  of  the 
bankers  and  merchants  of  London,  transferable  by  delivery 
only,  without  endorsement.  The  Queen's  Bench  sustained 
the  plea  ;  but  the  Court  of  Exchequer  rejected  the  custom, 
because  it  appeared  by  the  instrument  that  it  was  payable 
to  a  particular  person,  and  that  usage  could  not  make  an 
instrument  so  limited  negotiable. 

And  although  an  instrument  may  be  negotiable,  the  trans- 


'  See  also  as  to  estoppel,  Crouch  Bentinck  vs.   London  Joint  Stock 

vs.  Crddit  Foncier,  supra;  Colonial  Bank,  (1893)  2  Ch.  120. 

Bank  vs.  Cady,  38  Ch.  D.  388;  15  '  13  East,  509. 

App.  Cas.  267;  Fine  Art  Soc.  vs.  M5  L.  J.  Q.  B.  395. 
Union    Bank,    17   Q.    B.    D.    705; 


How  Negotiability  may  be  Established.         071 

feree  ranst  take  loiiajide  and  for  value.'  Gross  negligence 
"Was  formerly  held  evidence  of  malajidesi^  But  in  Goodman 
vs.  Harvey^  it  was  held  that  there  must  be  actual  mala  fides. 

Mere  negligence  on  the  part  of  the  transferee,  to  detect 
his  transferor's  bad  title,  cannot  be  pleaded  as  a  defence  to 
an  action  by  the  transferee.^ 

But  if  an  agent  pledges  negotiable  instruments  for  an 
amount  beyond  the  limits  of  his  authority,  and  the  pledgee 
has  notice  of  the  limit,  he  can  only  retain  the  securities  in 
pledge  to  secure  the  amount  authorized.' 

Although  if  the  pledgee  has  not  such  notice  he  may  re- 
cover the  full  amount  due  to  him.^  Mere  knowledge  that 
the  pledgor  is  a  Broker  is  not  sufficient  notice.' 

And  it  has  been  held  that  the  owner  of  a  negotiable 
instrument,  ■which  has  been  stolen,  has  no  title  to  it  as 
against  a  hojiafide  holder  for  value,  although  he  prosecutes 
the  thief  to  conviction.^ 

There  are  English  cases  in  which  the  usage  of  a  partic- 
ular trade  has  been  held  to  be  binding  on  the  pei*sons  en- 
fjaged  in  the  trade. 

Thus  in  Merchant  Banking  Co.  vs.  Pha^nix  Bes.  Steel 
Co.,®  a  usage  of  the  iron  trade  that  warrants  for  goods  "  de- 
liverable to  A.  B.,  or  assigns,  by  endoi-sement  hereon," 
were  considered  to  pass  to  the  holders  for  value,  free  from 

*  Loiidnn  Joint  Stock  Hank  vs.  '  Hentiiu-k  vf?.  London  Joint 
Simrnons,   supra.  Stork  Hunk,  supra. 

»  Gill  vs.  Cubitt,  3  H.  (t  C.  406.  '  Huker  vs.  .NottinKHjuin  Hank,  (M) 

»4A.  &  E.  870.  L.  J.  Q.  H.  5-12.     See  uIho  in  thi.s 

*  Veniibles  vs.  Hurinn,  (1S02)  3  <<)iinection,  cjimph  cited  in  Smith's 
Ch.  .527.  Leading  Ciw.  vol.  I.  p.  4S». 

*  Londoti  Joint  Stock  Hunk  vs.  "  I'hichester  vs  Hill  it  Son,  .'»2  L. 
Sirninr>n«,  supra;  Shefncid  vs.  Lon-  J.  il.  H.  HJO. 

don  JointStock  Bank,  13  \\>\k  Vm.       *  L.  R  r,ri».  I).  20r). 
.333. 


672  Stock-brokers  aiul  Stock  Exchanges. 

any  vendor's  lien,  was  hold  to  be  binding  on  the  steel  com- 
pany, which  was  tlic  vendor.  This  usage  was  shown  to 
have  been  quite  general  in  the  iron  trade  for  nearly  forty 
years,  and  Jessel,  M.  R.,  foinul  that  tlio  steel  company  knew 
of  it  and  gave  the  iron-warrant  for  the  purpose  of  having 
it  dealt  with  in  accordance  with  the  usage  ;  and  that  hav- 
ing given  such  a  document  to  a  person  knowing  that  he 
could  use  it,  and  intending  that  he  should  use  it  by  obtain- 
ing money  on  it,  it  could  not  afterwards  be  allowed  to  set 
up  against  persons  from  whom  he  had  obtained  money, 
that  they  should  not  have  the  benefit  thereof  ;  that  the 
company  was  estopped  from  so  doing  on  the  most  elemen- 
tary principles  of  equity.' 

"Without  discussing  the  question  further,  it  is  sufficient 
for  our  purposes  to  show  that  by  the  English  authorities, 
the  custom  of  Bankers  and  Stock-brokers,  such  as  was  pre- 
sented in  the  case  of  Goodwin  vs.  Ilobarts,  is  sufficient  to 
confer  upon  instruments  the  impoilant  attributes  of  nego- 
tiability f  and  it  will  be  important  hereafter  to  consider 
this  doctrine  in  connection  with  the  sul)ject  of  certificates 
of  stock,  which  are  technically  non-negotiable. 

The  precise  question  how  far  usage  will  be  allow^ed  to 
operate  in  extending  negotiability  has  not  been  much  dis- 
cussed in  our  courts,  but  the  general  rules  imposing  limita- 
tions upon  usage  are  strictly  applied  in  the  State  of  New 

'  Consult  also,  iu  this  connection,        ^  This  case  was  followed  and  en- 

Talty  vs.  Freedman's  Trust  Co.,  1  dorsed  by  Rumball  vs.  Metropolitan 

MacArth.  522;  Matter  of  Leland,  6  Bank,  L.  R.  2  Q.  B.  Div.  194;  46  L. 

Ben.  (U.  S.)  175;  Humboldt  Town-  J.  Q.  B.  Div.  346;  36  L.  T.  N.  S. 

ship  vs.  Lon-T,  92  U.  S.  642;  Gaar  vs.  240;  25  W.  R.  366.     See,  however, 

Louisville  Co.,  11  Bush  (Ky.),  180;  Colonial  Bank  vs.  Cady,   15  App. 

Dinsmore  vs.  Duncan,  57  X.  Y.  573,  Cas.  267. 
rev'g  4  Daly,  199;  Pardee  vs.  Fish, 
60  N.  Y.  265. 


How  Nejiotiability  may  be  Estal>lisluMl.         G73 

York.  Thus,  in  Security  Bank  vs.  National  I^)ank,'  an  at- 
tempt Avas  made,  by  proof  of  usage  among  Dankers,  to 
give  the  word  "■  certification"'  alargerscope  than  it  had  re- 
ceived by  settled  legal  construction,  and  such  proof  was  ex- 
cluiled. 

But  in  Massachusetts  it  has  been  held  ^  that  a  custom  in 
Boston  to  treat  certificates  endorsed  in  blank  as  negotiable, 
was,  on  being  proved,  sufficient  to  enable  a  hona  fide  holder 
for  value  to  assert  his  title  as  against  the  true  owner,  if  the 
latter  entrusted  the  instrument  to  another  who  pledged  it 
for  his  own  debt. 

And  in  a  case  in  Iowa,  it  was  shown  that  there  was  a 
usage  among  the  merchants  of  tiie  city  of  Burlington  to  re- 
gard certain  paper — a  note — payable  "  in  currency  "  as 
negotiable.  Tiiis  usage  was  resisted  on  the  gi-ound  that  by 
the  constitution  of  that  State  all  laws  were  required  to  be 
uniform,  and  therefore  a  note  could  not  be  negotiable  in 
one  city  and  not  so  in  another,  nor  could  a  custom  be  recog- 
nized which  wouUl  result  in  the  same  thing.  In  passing 
upon  this  question,  the  court  said  :  "  It  must  be  rememl)c'i-ed, 
however,  that  we  have  no  statute  prohibiting  such  custom. 
A  custom  in  a  particular  locality,  w:hen  not  in  violation  of 
law,  becomes  a  law  to  parties  contracting  with  a  knowledge 
of  it.  The  same  general  rule  as  to  what  makes  custoMi,and 
its  application  in  the  construction  of  contracts,  obtains  uni- 
forndy  over  the  State.  It  might  a.s  well  be  claimed  that 
all  parties  must  make;  the  same  kind  of  contracts,  as  that 
they  may  not  contract  in  reference  to  different  customs." 
.And  the  u.sage  was  sustained.'' 

'67    .\.    Y.    J.W.  '  RindskofT  vs.  Marn-tt.  It  I..w:i, 

*  ScoUans  vh.  Ilollinfl,  170  Mjms.  101.  Soo  uIho  V«Tiiiilyc  vs.  .AdntuH 
346.  Kxprow  C;o.,  21  Wall.  l.W. 

43 


674  Stock-brokers  and  Stock  Exchanges. 

But  the  effect  of  a  custom  of  the  Stock  Exchange  and  of 
Bankers  and  Brokers  in  Baltimore,  requiring  Virginia 
registered  consols  to  be  transferred  in  writing,  and  to  be 
accompanied  by  a  power  of  attorney  acknowledgeil  before  a 
notary  public,  is  to  restrict  negotiability,  as,  in  the  absence 
of  such  a  custom,  they  would,  as  strongly  resembling 
promissory  notes,  be  transferable  by  endorsement  merel}'.' 

In  some  of  the  United  States  attributes  of  negotiability 
have  been  conferred  upon  certain  instrument  by  statute, 
which  are  not  recognizable  as  negotiable  by  the  law-mer- 
chant. 

In  Iowa  "  bonds  and  other  instruments,  without  words  of 
negotiability  are  made  assignable  by  indoi*sement,  and  the 
assignee  shall  have  a  right  of  action  in  his  own  name,  sub- 
ject to  all  defences  which  the  assignor  might  have  had 
prior  to  endorsement. 

In  Illinois  bonds  or  other  instruments  payable  in  money 
or  ''personal  property,"  may  be  assigned  by  indorsement 
in  the  same  manner  as  bills  of  exchange.^ 

A  similar  statute  was  passed  in  Georgia  in  1799,^  and  the 
hona  fide  purchaser  of  negotiable  paper  not  dishonored  is 
protected,  though  the  seller  had  no  title.^ 

In  Kansas^  all  receipts  for  grain  issued  by  any  ware- 
house shall  be  negotiable  by  endorsement  in  blank,  or  by 
special  endorsement,  in  the  same  manner  as  bills  of  exchange 
and  promissory  notes. 

'Taliaferro    vs.     Baltimore    &c.  order"  in  connection  with  payee's 

Bank,    17    Atl.    Rep.    (Md.)    1036.  name.     Russell  vs.   Bosworth,   106 

See  also  cases  cited,  ante,  p.  462  111.  App.  314. 
et  seq.  ^  Code,   §  3682. 

'  Rev.  Stats,  of  1897,    §  3045.  '-  Id.    §  3538. 

'  Rev.  Stats.  111.  ch.  98  (4).  They  «  Dassler's  Stats,  of  1901,  §  1441. 
need   not   contain   the   words   "or 


Requisite  Elements  of  Negotiability.  G75 

(c.)  Requisite  Elements  of  Negotiability. 

The  Negotiable  Instruments  Law  contains  the  following 
provision  (Art.  11. ,  jj  2<>)  as  to  form  : 

"  Form  of  Negotiable  Instrument. — An  instrument  to  be 
negotiable  must  conform  to  the  following  requirements: 

1.  It  must  be  in  writing  and  signed  by  the  maker  or 
drawer. 

2.  Must  contain  an  unconditional  promise  or  order  to  pay 
a  sura  certain  in  money.' 

3.  Must  be  payable  on  demand,  or  at  a  fixed  or  determin- 
able future  time. 

4.  Must  be  payable  to  order  or  to  bearer ;  and 

5.  Where  the  instrument  is  addressed  to  a  drawee,  he 
must  be  named,  or  otherwise  indicated  therein  with  reason- 
able certainty." 

And  other  sections  of  Art.  il.  contain  provisions  inter- 
preting these  various  requirements  as  to  form. 

The  statutory  provision  is  mci't'ly  declaratory  of  the  law 
as  it  existed  prior  to  its  enactment. 

The  Xetjotiable  Instruments  Law  (codifvino:  the  law  as  to 
negotiable  insti-uments)  has  n(jw  been  adopted  in  twenty- 
two  States  of  the  Lnion,  and  al.so  in  the  District  of  Cohim- 
bia,^  and  as  it  will  d<jublless  be  enacted  in  the  remaining 


'  A    particular    kind   of    curn-iit  .Maryland,   Ma«.sachu.setts  and  Vir- 

moiiey   may    he    dcsiji^nated    (Neg.  KJiiia  in    189S.     In  the   District  of 

In.sts.    I^w,   §   25,   suhd    .5).     .\nd  Colinnhia,    N'ortli    Carolina,    N'orth 

by  .statute,  irt  some;   of  the  States,  Dakota,     ()r€'^;on,     Itliodc     Island, 

the  inHtniMUMit    may  be  payable  in  Tennessee,    I'tah,   \Va-sliin>rton  and 

property  or  hibor      Seeante,  p   071,  Wisconsin    in    1S'.)9.      In     IVnnsyl- 

and    Neg.    Irmts.    Law,    §    'J.5    Cl:Lst  vania    and     Arizona    in     1001.      In 

Hentencc).  Ohio,  Iowa  and  N'«'W  Jersey,  in  1902. 

'  In    New   York,   Colorado,   Con-  In  Idaho  and  Montana  in   HKl.'i 

nectieut  and     Florida  in   1S97      In  It  Nhonid  be  borne  in  tnind  that 


G70  Stock-brokers  ami  Stock  Exchanges. 

States  and  Territories  within  the  next  few  3'ears,  it  has  been 
deemed  sulficient  to  set  forth  a  few  of  its  pi-incipal  pro- 
visions, and  to  give  a  digest  of  the  decisions  alfccting  the 
noo-otiable  instruments  usuallv  dealt  in  bv  Stock-brokers  or 
dealers,  and  in  which  thoy  may  have  been  directly  or  in- 
directl}'  concerned,  and  a  few  of  the  leading  cases  as  to 
negotiable  instrnmentsin  genei-al,  without  encumbering  this 
work  with  a  digest  of  the  great  mass  of  decisions  (chiefly 
relating  to  bills  and  notes,  or  to  transactions  outside  of  the 
Exchanges,  or  between  persons  other  than  brokers)  as  to 
such  instruments.' 

A  negotiable  instrument  must  be  a  complete  and  perfect 
instrument  when  it  is  issued,  or  tliere  must  be  authority  re- 
posed in  some  one  to  supply  anything  needed  to  make  it 
perfect.^ 

Independent  of  statute,  the  rule  is  well  established  that 
there  must  have  been  deliver}^  to  render  an  incomplete  in- 
strument, filled  up  without  authority,  negotiable.  There- 
fore, when  railroad  bonds  and  coupons  payable  to  bearer, 
were  made  payable  either  in  British  currency  in  T.ondon,  or 
in  United  States  currency  in  New  York  or  New  Orleans, 
and  the  president  was  authorized  to  endorse  on  the  bonds 
the  place  of  payment,  but  the  bonds  were  never  issued,  or 

the     English     codification     statute  cisions  of  the  courts,  wlierea.s  in  the 

(Bills  of   Exchange   Act,    1882)    is  United  States  i    is  practically  now 

confined  to  bills  and  notes,  whereas  contained    in    the    Negotiable    In- 

the    Negotiable    Instruments    Law  struments  Law    (supplemented   by 

inchides  the  instnunents  (enumer-  the  rules  of  the  law  merchant,  Neg. 

ated  at  p.  649  et  seq.)  usually  dealt  Inst.  Law,   §  7),  as  interpreted  by 

in  by  Stock-brokers,  provided  such  the  courts. 

instniments   comply    with    the   re-  '  For  the  law  as  to  negotiable  in- 

f|uirements    of    its    20th    section,  .struments  in  general,  see  Daniel  on 

Therefore  the  law  as  to  the  nego-  Neg.  Inst.  (5th  ed.),  and  Eaton  & 

tiability  of  such  instruments  must  Gilbert  on  Commercial  Paper, 

in  England    be  .sought  in  the  de-  ^  See  Neg.  Insts.  Law,  §§  32-5. 


Requisite  Elements  of  Neijotiability.  077 

the  endorsement  made  bv  the  president,  and  the  bonds  were 
stolen  from  the  company  while  still  in  its  possession,  a  hona 
fide  holder  for  value  was  not  authorized  to  fill  the  blank 
for  the  place  of  payment,  and  could  convey  no  title  to  the 
bonds.^ 

And  the  S-ith  section  of  the  Negotiable  Instruments  Law 
is  now  declaratory  of  the  general  rule,  as  ftjlows  :  "  Where 
an  incomplete  instrument  has  not  been  delivered,  it  will  not, 
if  completed  and  negotiated  without  authority,  be  a  valid 
contract  in  the  hands  of  any  holder,  as  against  any  person 
whose  signature  was  placed  tliereon,  before  delivery." 

But  if  the  incomplete  instruments  (e.  g.,  city  bonds) 
have  been  delivered,  with  authority  to  negotiate  them,  the 
holder  may  fill  up  the  blanks.-  And  this  rule  is  now  incor- 
porated in  the  ?>?A  section  of  the  Negotiable  Instruments 
Law. 

Delivery  may  sometimes  be  presumed  until  the  contrary 
is  pi-oved.' 

In  Cooke  vs.  The  United  States  *  certain  Treasury  notes 
had  been  printed,  stamped,  and  sealed  by  the  proper  agents 
of  the  government,  but  they  had  not  been  issued  ;  but  an 
innocent  purchaser  of  thetn  was  held  to  be  jirotected.  There 
is  no  doubt  that  genuine  Treasury  notes  form  part  of  the 
negotialjle  commei-cial  pajx-r  of  the  country.'' 

I5ut  if  state  couj)on  bonds  have  been  rtMJccint'd,  and  other 
Ixjnds  i.ssued  iti  their  stead,  and  the  foi-nn-r  have  been  sub- 

'  Lcdwich  vs.   McKirii,  .'>;?  .\.   V.  .Vow  York  oa^c  upon  (lir  .sul)j('ct  of 

307.  iienotiubility. 

'  Muiihattaii    SavinRS    Inst.     v.s.  '  N't'K-  In.st.  Law,  §  35. 

Hunk,    170   N,   Y.   .58.     TIuh  ca.so,  ««1     U.    S.    :j«y,    reverninK     12 

altlioiifih   not  oiio  in   wliicli  Stock-  Mlatchf.   13. 

|jrok«T»    wcr*.'    conrcnicd,    ih    Irto  '  Vi-rtiiilyo    vh.    Kxpretw   Co.,    21 

(•it«'«l,    !Ls    \>i-\\\''    a    le-adiiiK    rfc«Mit  Wall,  13S. 


G78  Slock-hrokers  and  Sfock   Kxchaiif^es. 

sequeiitly  stolen  from  the  State,  and  jiurchased  by  the  plain- 
tiffs in  o-ood  faith  from  a  New  Yoi-k  Stock-broker,  the 
j)la  in  tiffs  -dvo  not  entitled  to  have  other  bonds  issued  to 
them,  as  tlie  redemption  of  the  bonds  was  equivalent  to  a 
return  of  tlic  bonds  to  the  mak(M'  (the  State),  and  tlie  sub- 
sequent theft  was  not  a  delivery  of  the  bonds  making  them 
negotiable.' 

A  negotiable  instrument  (a  rnitcnl  States  gold  certificate) 
made  payable  by  special  indorsement  to  the  order  of  the 
holder,  can  be  only  transferred  by  the  indorsement  of  such 
holder.^  If  such  indorsement  is  erased,  an  innocent  pur- 
chaser for  value  does  not  acquire  title,  although  the  erasure 
is  so  skilfully  made  that  it  cannot  be  detected  by  the  most 
careful  scrutiny.''  Such  is  the  general  rule.^  The  purchase 
of  such  a  certificate  by  a  share  dealer  in  London  at  £30  be- 
low its  market  price,  although  such  certificates  can  always 
be  sold  at  their  market  value,  and  the  not  calling  the  seller 
as  a  witness,  made  the  transaction  suspicious,  and  deprived 
the  purchaser  of  the  benefit  of  an}'-  exceptions  to  the  gen- 
eral rule.^ 

{d.)   Results  of  Npgotlabilltij ;    Bona  Fid/'   Holders. 

1.  Results  of  XegotldhiUiy. — The  change  in  the  law  which 
we  have  indicated,  making  choses  in  actions  assignable,  so 
that  the  assignee  might  sue  and  enforce  the  same  in  his 
own  name,  if  it  had  stopped  there  would  have  accomplished 
much.  What  the  commercial  necessities  of  England  re- 
quired  was    that    negotiable    securities   should    pass  from 

'  Branch   vs.   Commissioners,   SO  ^  Id.  Xeg.  Inst.  Law,  §  205. 

Fed.  Rep.  427.  *  Id. 

'  Kulb  vs.  United  States,  18  Ct.  *  Id. 
Cls.  560;  Neg.  Inst.  Law,  §  64. 


Results  of  Nesrotiability ;  Kona  Fide  Holders.   1179 

hand  to  hand,  free  from  all  restrictions  and  conditions ; 
that  they  should  become  representatives  of  money  ;  and 
that  every  person  accepting  or  receiving  them  should  be 
entitled  to  collect  them,  without  being  subject  to  impedi- 
ment or  hindrance  on  the  part  of  the  maker,  except  his 
financial  abilit}'.  And,  growing  out  of  this  necessity  of 
commerce,  we  have  now  firmly  established  in  law  the  main 
and  principal  result  of  negotiability,  and  which  is  often  er- 
roneously confounded  with  the  doctrine  of  negotiability 
itself* — viz.,  that  a  purchaser  or  transferee  in  good  faith, 
for  value,  and  before  maturity  of  a  negotiable  instrument, 
is  not  affected  by  any  latent  equities  between  the  original 
parties,  or  in  favor  of  third  persons,  unless  they  are  brought 
to  his  notice.  And  in  law  this  extensive  privilege  is  com- 
monly designated  as  "the  rights  of  a  hona  fide  holder  or 
purchaser."  ^  But,  to  bring  one  within  the  protection  of 
this  broad  rule,  it  is  necessary  that  certain  conditions  should 
exist  in  his  favor,  the  nature  of  which  we  shall  now  proceed 
to  examine  briefly. 

lie  must  be  a  purchaser,  1st,  in  good  faith  without  no- 
tice ;  2d,  before  maturity  ;  3(1,  for  value.^ 

1st.  lie  must  he  a pxirhcaser  in  (jood faith  without  notice. 
For  if  he  have  notice  that  there  are  defects  in  the  title  of 
his  assignor,  or  the  party  from  whom  Ik;  receives  the  nogo 
tiable  pajXir,  it  follows  that  he  is  not  entitled  t(»  avail  hiiii- 

'  See    distil  I  ctioiLS    set    fonh     in  nocently  sold  .securities  for  imot  her 

Shaw  vs.  II.  R.  Co.,  101  U.  S   557.  liroker  wjls  liold  not  liuhlc  to  the 

The  rule  docs  no    extend  to  jwr-  priiicipiil  of  the  laltcT. 

hons   not   bona   fide    piirchitsers   or  '  lirown    vs.   B|)ofTord,   05    H     S. 

holders,  nor  to  their  agents      Kim-  171      Tlw  rule  of  law  .set  fortli  in 

ball  vs.  riiilintrH,  55  .Me.  1  J7;  Swim  tlic   text   is   now  einl>odied   in   the 

vs.  Wilson,  5  Hank.  L.  J.  2Hfi.     Hut  '.Hllh  seetion  (»f  th«.'  .Ni'^otialili!  In- 

see   Zuliek    vs.    Markham,   0   Daly,  Btruments  Law. 

129,  where  a  Stock-broker  who  in-  'See  .Nen.  Inst.   Law,   j'Jl. 


080  Stock-hrokors  and  Stock  Exchanges. 

self  of  tlio  pi'otoction  aironled  by  tlie  nilf  in  (luostion,  and 
no  commercicil  necossit}'  would  seem  to  reciuire  that  he 
should  receive  such  protection.  Express  or  actual  notice 
\Yould  bar  his  rights  as  a  huna  fide  holder,'  and  leave  the 
maker  to  assert  any  defence  to  the  paper  which  existed  in 
his  favor.  l>ut  the  numerous  cases  on  this  extensive  sub- 
ject have  mainly  ai'is(Mi  in  attemi)ts  to  fix  upon  tiie  holder 
constructive  notice  of  defects,  and  the  courts  have  expe- 
rienced no  small  difficulty  in  applying  the  familiar  doctrine 
to  the  facts.  The  form  and  condition  of  a  negotiable  in- 
strument  are  of  themselves  constructive  notice  to  the  pur- 
chaser. Constructive  notice  to  a  person  is  the  imparting  to 
him  of  sufficient  information  to  put  him  upon  inquiry  ;  and 
the  true  rule  as  to  the  meaning  of  '-  put  upon  inquiry-  "  is 
declared^  to  be,  that  the  rights  of  a  purchaser  of  negotia- 
ble paper  are  not  affected  by  constructive  notice  of  a  defect 
of  title,  unless  it  clearly  appears  that  the  in{piiry  suggested 
by  the  fact  disclosed  at  the  time  of  the  purchase  would,  if 
fairly  pursued,  result  in  the  discovery  of  the  defect.  In 
that  case  it  was  held  that,  the  number  of  a  bond  not  being 
an  integial  ]xu't  of  it,  an  erasion  and  alteration  of  the  num- 
ber was  not  constructive  notice  that  the  bond  had  been 
stolen  ;  and  for  the  further  reason,  also,  that  the  line  of 
inquiry  suggested  by  the  fact  of  alteration  would  not,  if 
pursued,  lead  to  the  detection  of  the  larceny.  Such  a  no- 
tice as  will  })iit  a  pi-udcnt  man  on  his  guard  is  not  enough, 
e.  g.,  the  absence  of  certificates  referred  to  in  the  bond.^     In 

'  Cass  County  vs.  Green,  66  Mo.  bearer     bonds,      placed     in     their 

498.  hands     for     sale,     with    a     bank, 

^  Birdsall  vs.  Russell,   29  N.  Y.  which   receives  them   in   the  ordi- 

220.  nary    course    of   business    in    pood 

^  Welch    vs.    Sage,    47    id.    143.  faith,  and  for  a  valuable  considera- 

If    Stock-brokers    pledge    railroad  tion,  and  without  notice  of  the  own- 


Results  of  NeifOtiability  ;  Bona  Fide  Holders.    681 

fact,  clear  knowledge  of  fi-aiul  must  be  })rove(l  on  the  part 
of  the  holder,  and  is  not  to  be  presumed  on  slight  evidence; 
and,  if  the  evidence  is  but  slight,  the  court  may  withdraw 
it  from  the  jury.^ 

If  no  actual  notice  of  incipient  fraud  is  given  to  the  in- 
tending purchaser  of  a  note,  he  is  not  affected  by  notice 
that  the  payee  promised  not  to  negotiate  it,  and  by  an  in- 
definite notice  that  he  is  buying  a  lawsuit,  and  he  is  not 
thereby  put  upon  inquiry  for  a  fraud  which  actually  entered 
into  the  incipiency  of  the  note  ;  that  is,  no  complicity  in 
fraud  is  ever  to  be  presumed  as  against  a  holder  for  value 
of  negotiable  })aper.-'  '^'en  though  he  does  not  pay  full 
value  and  there  may  be  enough  to  excite  suspicion,  his  title 
is  not  thereby  impaired;^ 

It  is  a  general  rulf  that  persons  dealing  with  pi-operty 
are  bound  to  take  notice  of  any  suit  pending  with  respect 
to  its  tiile,^  even  though  not  themselves  parties  to  it;^  but 
it  seems  that  it  is  the  jm'?i( fen ci/  ot  the  suit  which  creates  the 
notice,  so  that  after  the  cause  is  ended  the  decree  is  not 
notice.^ 

Negotiable  paper  not  due  is,  however,  excepted  from  the 

ere  title,  the  bank  affiuires  a  Rood  '  Battles  vs.  Laudenslaper,  84  Pa. 

title  to  .such  securities  as  against  the  St.  446. 

owner,    a   cu.stoiner   of   the   Stock-  '  Hei.st  vs.  Ilart,  7:5  Pa.  St.  2S6. 

brokers.     Tliornpson  vs.  St.  Xicho-  'Cromwell  vs.  County  of  Sac,  lUi 

las  Nat.  Bank,  113  X.  Y.  325;  id.  9  U.  S.  .11. 

N.  Y.  St.  Kep.  303.  *  Murray     vs.     Balou,     1     Johns. 

But  where  the  bond.s  of  a  rail-  ("h.   rA'tCr,  Garth   vs.   Ward,  2  Atk. 

road,  siffned  by  a  trustee,  are  placed  174. 

by  him  upon  the  market,  and  they  *  Bisho))  of  \\'inchcs(or  vs.  I'ainc, 

are  sold  for  a  trifling  sum,  the  pur-  11   Vcs.   I'.tl 

chaser  should   have   made   in<|uiry  *  Worsley  vs.  Scarborough,  .3  .\tk. 

as  to  the   reirnlarity   of  the   issue.  391. 
RiKpi  vs.   Pennsylvania  Ac   H.   K. 
Co.,  10  Fed.  Kep.  S04. 


682  Stoek-brokors  and  Stock  Kxcliau^es. 

general  rule,  because  of  the  high  favor  in  which  it  is  lield 
as  a  circulating  medinin,  unless  there  is  actual  notice  of  the 
suit.^ 

The  question  arose  in  the  case  of  Leitch  vs.  Wells  ^ 
whether  a  purchaser  of  certificates  of  stock  was  affected  b}' 
the  pendency  of  a  suit,  and  the  court  hold  in  conformity 
with  the  above  views,  Earl.,  C,  saying :  "  Since  the  decision 
of  the  case  of  ^IcXeil  vs.  Tenth  National  Bank,  alcove  cited, 
certificates  of  stock,  Avith  blank  assignments  and  powers  of 
attorney  attachetl,  must  be  nearl}'  as  negotiable  as  commer- 
cial paper.  The  doctr-ine  of  constructive  notice  by  lis  jyen- 
dens  has  never  yet  been  applied!*to  such  property.  This 
doctrine  must  have  its  limitations.  It  could  not  be  applied 
to  ordinary  commercial  paper,  nor  to  bills  of  lading,  nor  to 
government  or  corporate  bonds  payable  to  bearer.  Indeed, 
I  do  not  find  that  it  has  ever  been  applied,  and  I  do  not 
think  it  ought  to  bo  applied,  to  any  of  tlie  articles  of  ordi- 
nary commerce.  Public  policy  does  not  require  that  it  should 
be  thus  applied.  On  the  contrary,  its  application  to  such 
property  would  work  great  mischief  and  lead  to  great  em- 
barrassments." 

If  a  first  endorsee  for  value  takes  without  notice  of  any 
prior  equities,  a  second  endorsee  for  value  takes  a  good  title, 
although  he  had  notice  of  such  equities.  As  was  declared 
by  Field,  J.,^  "  the  rule  has  been  too  long  settled  to  be  ques- 

*  Orleans  vs.  Piatt,  99  U.  S.  676,  doctrine  of  lis  pendens  does  not  ap- 

683;  County  of  Warren  vs.  Marcy,  ply  to   negotiable   paper   (railroad 

97  id.  96;  Winston  vs.  Westfeldt,  bonds)  purchased  before  due.  Pitts- 

22  Ala.  760;  Stone  vs.  Elliott,   II  l)urgh  &c.  Co.  vs.  Lynde,  55  Ohio 

OhioSt.  252;Mimsvs.  West,  3SGa.  St.  23. 

18;  and  see  Leitch  vs.  Wells,  48  X.  '  Supra. 

Y.  585.  '  Cromwell  vs.  County  of  Sac,  96 

In  Ohio  it  has  been  held  that  the  U.  S.  51. 


Results  of  Negotiability;  Bona  Fide  Holders.   083 

tioned  now,  that  whenever  negotiable  paper  has  passed  into 
the  hands  of  a  party  unaffected  by  previous  infirmities,  its 
character  as  an  available  security  is  established,  aiul  its 
holder  can  transfer  it  to  others  with  the  like  immunity." 
In  such  case  the  second  endorsee  takes  a  new  title  from  the 
first  endoreee,  and  therefore  knowledge  of  any  infirmities  in 
the  old  title  does  not  affect  him.^ 

The  rights  of  a  holder  of  a  negotiable  instrument  are  to 
be  determined  by  the  simple  test  of  honesty  and  good  faith  ; 
he  is  not  bound  to  be  on  the  alert  for  circumstances  which 
might  excite  suspicion.^ 

The  possession  of  an  instrument,  endorsed  in  blank  or 
made  payable  to  bearer,  is  _p/'i7n a /"acie  evidence  that  the 
holder  is  the  owner  and  lawful  possessor  of  the  same  ;  and 
no  degree  of  negligence,  and  nothing  short  of  fraud  on  his 
part,  is  sufficient  to  overcome  the  effect  of  that  evidence  and 
invalidate  his  title.^ 

But  if  a  negotiable  instrument  (a  United  States  gold  cer- 
tificate) is  made  payable  by  special  endorsement  to  the 
holder's  order,  it  is  only  transferable  by  the  hitter's  endorse- 
ment, and  if  it  is  stolen,  and  the  special  endorsement  be 
erased,  London  stock-dealers,  who  ])urchased  the  same  for  a 


'  CommLssioners,  etc.,  vs.Clark,  94  38  Fed.  Rep.  G82;  Porter  vs.  Pitts- 

U.  S.  278,  286;  Riley  V.S.  Schawafk-  hvir^h    Steel   Co.,    122    U."  S.    267. 

er,  50  Iiid.  592;  Moniyer  vs.  Cooper,  Nff^.  In.st.  Law,  §  97. 

35  Iowa,  257;  Sinion  vs.  Mcrritt,  33  =  Ma^ee  vs.  Hadf^cr,  31  N'.  Y.  2J7. 

id.  537;  Woo<lnian  vs.  Churchill,  52  liad  faith  on  the  part  of  the  hf)ldor 

Me.  58;  Robert.s  vs.  Lane,  64  id.  108;  iiiu.st  l>e  shown.     Neg.    Inst.    Law, 

Woodworth    vs.    Huntoon,    40    111.  §  95.      And  .xff  Katon   &    Gilhert.s' 

131 ;  May  vs.  Chapman,  16  M.  &  W.  Com.  Paper,  p.  372,  and  cjisos  cited. 

355;  Masters  vs.  Ihljerson,  8  C.  h.  *  (Joodiuaii  vs.  Harvey,  4  Ad.  «.t 

100;   Central    .t    Hanking   Co.    vs.  Kl.  870.     Neg.    Inst.    Law,    {§   91, 

Fanners'    Loan    <t    Tnist   Co.,    \\i\  98. 
F'ed.  Itcp.  700;  Simmons  vs.  Taylor, 


084  Stock-brokers  and  Slock   Kxcluuij^es. 

valuable  consideration,  and  \vith(jut  notice  of  the  fraud,  ac- 
quire no  title.' 

In  Dutchess  Co.  Ins.  Co.  vs.  Ilatchfield,'^  New  York  \Wn- 
kei's  bought  Poughkeepsie  bonds  which  had  been  stolen. 
The  circumstances  which  were  charged  against  them,  indi- 
cating bad  faith,  were — 1st,  that  they  had  bought  a  bond  be- 
fore from  the  same  party  which  had  turned  out  to  be  stolen  ; 
and,  2d,  that,  instead  of  offering  tlie  bonds  in  New  York 
city,  they  took  them  to  Poughkeepsie  and  Albany.  The 
Brokers  having  proved  that  they  had  received  an  explana- 
tion of  the  first  transaction  of  the  stolen  bond,  and  having 
offered  to  prove  a  usage  of  Brokers  consistent  with  their 
own  course  in  offering  the  bonds  for  sale,  they  were  sus- 
tained in  their  possession  of  and  title  to  the  bonds,  and 
Church,  C.  J.,  laid  down  the  rule  applicable  to  such  cases  as 
follows  :  "  It  is  not  sufficient  that  a  prudent  man  would  be 
put  upon  inquir}^,  nor  that  the  purchaser  was  negligent,  nor 
that  he  did  not  exercise  a  proper  degree  of  caution.  A 
purchaser  of  such  securities  will  be  protected  if  he  is  honest 
and  believes  that  the  seller  has  a  good  title."  ^ 

Seybel  vs.  Nat.  Cur.  Bank^  was  a  case,  to  say  the  least, 
of  gross  negligence  and  reckless  disregard  of  others'  rights. 
Bonds  were  stolen  from  the  plaintiff  in  the  evening ;  the 
next  morning  he  served  printed  notices  of  the  theft,  with 
description  of  the  property,  at  defendant's  office,  on  their 


'  Kulb  vs.  United  States,  18  C.  stolen  certificate  endorsed  in  blank, 
Cls.  Rep.  560.  See  Neg.  Insts.  acquirednotitle,  the  usages  of  Stock- 
Law.  §  64.  brokers   to   the   contrary   not  wit  h- 

^73    N.    Y.    226.     But    in    East  standing. 

Birmingham  Land  Co.  vs.  Dennis,  ''  See    also    Brown    vs.    State,    1 

39  Alb.  L.  J.  (March  23,  1889)  223,  Atl.  Rep.  (Md.)  54. 

it  was  held  in  Alabama  that  an  iu-  ^  54  X.  Y.  288. 
nocent   purchaser   for   value   of   a 


Results  of  >'p2:otial)ility  ;  Bona  Fide  HoldtM-s.    G85 

cashier,  who  said  they  diil  not  care  for  notice;  the  same 
day  defendants  bought  the  stolen  bonds;  and  on  their 
testimony  that  they  did  not  examine  tlie  notice,  anil  had  no 
time  to  examine  such  notices,  the  court  sustained  them,  and 
adopted  the  rule  laid  down  in  the  leading  case  of  Goodman 
vs.  Simonds,'  to  wit :  "  Suspicion  of  defect  of  title,  or  the 
knowledge  of  circumstances  which  would  excite  such  suspi- 
cion in  the  mind  of  a  prudent  man,  or  gross  negligence  on 
the  part  of  the  taker  at  the  time  of  the  transfer,  will  not 
defeat  his  title.  That  result  can  be  produced  only  by  bad 
faith  on  his  pai-t." 

In  Goodman  vs.  Simonds"^  this  subject  is  fully  considered, 
English  and  American  cases  examined,  and  (roodman  vs. 
Harvey^  referretl  to  as  the  leading  case  in  England.  In 
the  case  last  cited.  Lord  Dciiman  said:  ''We  ai-c^  all  of 
opinion  that  gross  negligence  only  would  not  be  a  sufficient 
answer  where  a  ])arty  has  given  consideration  for  the 
bill." 

The  case  of  Gill  vs.  Cul)itt,'  laying  down  the  doctrine 
that  tlie  pnrchasci-  of  negotiable  ]»aper  must  exercist;  oi'- 
di nary  care  and  pi-udence,  is  ovt-rrnleil  both  in  England  and 
in  this  country.     It  stands  alone."' 

Tlie  title  and  rigiits  of  a  hona^p'dr  purciiaser  of  negoti- 
able paper  are  not  affected  l)y  the  fact  that  the  pei*son  from 
whom  he  rcM.civt-d  it    before   matiii'ity   had   possession   of  it 

'  20  How.  (U.  S.)  343.  Iiim.m    S.iv.    Inst,    vs;    Now    Vnrk 

'  Supra.  .V:c.  Hunk,  170  .\.  Y.  58. 

'I  .\d..t  E1.H70.     Tlie  piircluuser  • :{  H.  ik  V    MWi. 

is  not  efTcctcd  l»y  «oiistru(tiv(!  no-  '  !irlin<jiit  Mriunli  Hank  vs.  IIokp. 

tic-o    unlww    tlu-nr    is   a    natural    or  Wh  \.  V.  (i.'i;  (JofKlnwui  vh.  Harvpy, 

loKirul  connection  between  tlit;  farts  sufira;  I'tlnT  vs.  Hich,  10  .\<i.  A  Kl. 

uppftttrinR,   and    the;   fart   of  a   <!<•  7hI;  Arhouin  vs.  .\ndorMoii,  1  C^>    H 

fectivp  titlf'  in   th«  vcncl«ir      Man-  l'.»S,  .Wl. 


686  Stock-brokers  and  Stock  Exchanges. 

for  a  specific  purpose  and  misappropriated  it/  nor  by  the 
fact  that  the  apparent  owner  from  whom  he  bought  it  was 
an  agent  who  sold  it  in  breach  of  his  duty  to  his  principal.'^ 

The  presum})tion  is  that  the  holder  of  negotiable  paper 
has  p;iid  value  for  it  in  the  usual  course  of  business.^  So 
that,  in  bringing  suit  on  it,  all  he  has  to  do  in  opening  is  to 
prove  the  signature  and  introduce  it  in  evidence.* 

Ordinarily,  it  is  no  defence  against  a  bona  fide  holder 
of  a  note  that  the  maker  was  induced  to  sign  it  by  fraud  ;° 
and  a  thief  of  negotiable  pajier  can  give  a  good  title  to  it 
to  a  hona  fide  purchaser;*^  but  it  is  otherwise  as  to  non- 
negotiable  paper.''  But  if  a  negotiable  note  is  stolen  before 
delivery  by  the  maker,  it  has  no  inception,  and  the  thief 
can  give  no  title.^ 

Negotiable  paper  in  the  hands  of  an  innocent  holder  is 

*  Collins  vs.  Gilbert,  94  U.  S.  753;  An;ra,  etc.,  Bank  vs.  Leighton,  L.  R. 
Park  Bank  vs.  Watson,  42  N.  Y.    2  Ex.  61. 

490.  *  Fenton   a's.    Robinson,   4    Hun, 

'  Belmont  Branch  Bank  vs.  Hoge,  252. 

supra.  '  Welch  vs.  Sage,  47  N.  Y.  143; 

But  if  a  Stock-broker  knows  that  Seybel  vs.  Nat.  Cur.  Bank,  54  id. 
railroad  bonds  pledged  ^vith  him  by  288;  Birdsall  vs.  Ru.ssell,  29  id.  220; 
a  bank  ca.shier  were  not  the  hitter's  Colson  vs.  Arnot,  57  id.  253;  Pea- 
property  he  cannot  hold  them  as  cock  vs.  Rhodes,  2  Doug.  633;  Miller 
against  the  true  owner,  although  he  vs.  Race,  1  Burr.  452. 
had  not  express  notice  of  the  partic-  If  the  payee's  name  is  left  blank 
iilar  individual  who  was  the  real  in  a  city  bond,  and  is  stolen,  a  bona 
ownier.  Perth  Amboy  Mut.  Loan  f.de  purcha.ser  from  the  thief  may 
Assn.  vs.  Chapman,  80  A.  D.  556.  fill  in  the  blank  in  his  own  name  and 
See  Pittsburgh  &c.  Co.  vs.  Lynde,  acquire  title  thereto  as  if  he  had 
55  Ohio  St.  59.  purchased  it  from  the  la^^'ful  holder. 

'  Goodman  vs.  Simonds,  20  How.  Manhattan  Sav.  Inst.  vs.  N.  Y.  &c. 

343;  Pittsburgh  Bank  vs.  Xeal,  22  Bank,  170  X.  Y.  58. 

id.  96;  Murray  vs.  Lardner,  2  Wall.  '  Ledwich  vs.  McKim,  53  X.  Y. 

1 10;  Manhattan  Sav.  Institution  vs.  307. 

NY.  ttc.Bank,  170X.Y.58.     Xeg.  « Hall     vs.     Wilson,     16     Barb. 

Inst.  Law,  §  98.  548. 

*  Pettee  vs.  Prout,  69  Mass.  502; 


Results  of  »j?otial»iIity  ;  Bona  Fide  Holders.    G87 

not  invalidated  by  an  illegal  consiileratiou  unless  expressly 
declared  void  by  statute.^ 

If  a  person  buys  from  a  pretended  owner,  wlio  is  not  in 
possession,  he  is  not  a  hona  fide  purcliaser,  and  takes  no 
better  title  or  greater  rights  than  the  vendor  ;*  nor  is  he  if 
he  buys  from  a  known  agent  who  endorses  it  without 
authority;^  nor  will  he  be  made  so  by  the  principal's 
ratification  of  the  endorsement  after  maturity.^ 

2.   lie  mnst  he  a  j)urchaser  hefore  viaturity. 

The  fact  that  a  bill  or  other  instrument  is  overdue  is 
equivalent  to  notice  of  all  facts  relating  to  it ;  thus,  where 
a  note  was  endorsed  after  maturity,  the  maker,  being  sued, 
was  allowed  to  defend  himself  by  showing  that  he  had  paid 
it  to  the  original  payee.^  If  there  is  any  fact  relating  to  a 
bill,  notice  of  which  would  disentitle  a  holder  who  took 
the  bill  before  maturity,  the  existence  of  such  a  fact  dis- 
entitles a  holder  who  takes  the  bill  after  maturity  irrespec- 
tive of  notice.®  In  other  words,  if  a  note  is  negotiated  when 
overdue,  tlie  maker,  when  sued  by  the  endorsee,  may  set  up 
any  ecjuitable  defence  which  he  had  against  the  payee.' 

The  taker  of  an  overdue  note  is  but  the  assignee  of  a 
chose  in  action,  and  takes  only  such  title  as  his  assignor 
had.« 

Instruments  not  payable  on  demand  mature  with  the  last 

'  Grinicfi  vs.  llilleiibrand,  1  Hun,  .Ncllis  vs.  Clark,  1  Hill,  VIA;  O'Cal- 

354.  hinhuii   vs.  Sawyer,   5  Johns.   118; 

'  .Mull<;r  vs.  Poridir,  55  N.  Y.  ;125.  Van  Valkonhurnh  vs.  Stiipplohoen, 

'Gill)ert   vs.  Sharp,  2  Lans.  412.  49    Harl).   «.»<).     S.'o    Eaton    A    Gil- 

♦  Itl.  l)ort 's  ('(till.  Paper,  j)  3(tl,aii<l  cjwps 
'  Hrowii  vs.   Davics,  .i  '1".   K.  SO.  cit*-*! 

See  Cripps  vs.  Davis,   12  .M.  tV:  W.  "  Karriiiirton   vs.    Park    Ha!)k,   39 

1.59.  liarli    (i45;  Ih-  .Mott  vs.  Sturkey,  3 

•  M(.v<l  VM   Howard,  15  Q.  H.  995.  liarh    Ch    40.3. 
'  .M«-rri<k  vs    Hutlcr,  2  Laus    KKJ; 


G88  Stock-brokers  aii<I  Stock  Exchaii£?cs. 

day  of  grace.'  An  uccomniodation  note  transferred  on  the 
last  day  of  grace  l)y  tlu^  jiayee  to  ])laintiff,  during  haidcing 
hours,  as  colhiteral  security  for  an  indcbteihiessof  the  payee 
and  to  be  applied  thereon,  makes  the  ]»huntiff  a  bona  fide 
holder  before  nuiturit}'.-  An  instrument  payal^lc  in  in- 
stalments is  deemed  wholly  overdue  when  any  instalment 
is  overdue;^  Ijut  not  from  the  mere  fact  that  interest  is 
overdue,^  though  it  is  held  in  New  York  ^  that  a  note  is 
dishonored  by  overdue  interest. 

In  Vermilye  vs.  Express  Company  ^  the  Supreme  Court 
of  the  United  States  held  that  bonds  and  Treasury  notes 
of  the  United  States  payable  to  holder  or  bearer  at  a  future 

*  Evertson  vs.  Nat.  City  Bank,  66  the  open  market,  into  the  hands  of  a 
N.  Y.  14.  But  under  the  Neg.  bona  fide  purchaser  for  value,  the 
Inst.  Law,  §  103,  a  negotiable  in-  latter  acquires  a  good  title  there- 
strument  is  payable  at  the  time  to,  although  two  of  the  interest 
fixed  therein,  without  grace.  In  coupons  were  overdue  at  the  time 
some  of  the  States  adopting  that  of  purchase.  Long  Island  Loan  & 
law,  days  of  grace  have  been  re-  Trust  Co.  vs.  Columijus  «tc.  11.  R. 
tained,  and  in  several  of  the  States  Co.,  65  Fed.  Rep.  4.55,  and  cases 
which  have  not  enacted  it,  days  of  cited.  As  to  what  circumstances 
grace  have  been  abolished.  Eaton  will  not  constitute  the  holders  of 
&  Gilbert's  Com.  Paper,  p.  476.  railroad   bonds,   bona   fide   holders 

'  Continental     Nat.      Bank     vs.  for    value    before     maturity,     see 

Townsend,  1.3  N.  Y.  Week.  Dig.  295;  Simmons  vs.  Taylor,  38  Fed.  Rep. 

N.  Y.  Ct.  App.  Nov.  22,  1881.  682. 

'  Vinton  vs.  King,  86  Mass.  562;  '  Newell  vs.  Gregg,  51  Barb.  263. 

Field  vs.  Tibbetts,  57  Me.  358.  «  21    Wall.    138.     To    the    same 

*  Nat.  Bank  vs.  Kirby,  108  Mass.  effect  is  Cornell  vs.  District  of 
497;  Cromwell  vs.  County  of  Sac,  Columbia,  20  Ct.  Cls.  Rep.  229, 
96  U.  S.  51 ;  Kelley  vs.  Whitney,  45  where  it  was  held  that  a  bona  fide 
Wis.  110;  Boss  vs.  Hewitt,  15  id.  purchaser  of  District  of  Columbia 
260;  Brooks  vs.  Mitchell,  9  M.  &  W.  coupon  bonds  stolen  from  the 
15.  Board  of  Audit,  after  they  had  be- 

If   the    president    of    a    railroad  come  due,  could  not  recover,  and 

company  (which  had  intrusted  its  that  if  he  wished  to  avail  of  the 

negotiable  bonds  to  him  for  .sale  or  rights  of  prior  holders,   he  should 

exchange)  pledges  them  with  Bro-  prove  that  they  purchased  before 

kers  to  secure  his  own  debt,   and  maturity, 
they  subsequently  come,  by  sale  in 


Results  of  ^ei^otiability ;  Bona  Fide  Holders.    689 

definite  time  were  subject  to  this  principle,  aiul  that  a 
purchaser  after  they  were  overdue  took  subject  to  the 
rights  of  antecedent  holders. 

In  an  earlier  case*  it  had  been  held  that  neijotiableo'ov- 
eminent  securities  redeemable  at  the  pleasure  of  the  gov- 
ernment, after  a  specified  day,  but  in  whieli  no  date  was 
fixed  for  final  payment,  ceased  to  be  negotiable,  as  overdue, 
after  the  day  when  they  first  became  redeemable,  but  tliis 
ruling  was  subsequently'^  limited  to  cases  where  the  pur- 
chaser acquired  title  with  notice  of  the  defect  of  title,  or 
under  circumstances  discrediting  the  instrument,  such  as 
would  affect  tlie  title  of  negotiable  demand  paper  purchased 
after  an  unreasonable  length  of  time  from  the  date  of  the 
issue.  Therefore  when  it  appeared  that  United  States  5-20 
bonds  (redeemable  at  the  pleasure  of  the  United  States 
after  the  1st  day  of  -Tuly,  ISTi',  and  payable  on  the  1st  day 
of  July,  1885),  were  stolen  from  the  owner,  in  October,  1878, 
and  purchased  in  the  year  1879,  by  the  plaintiffs  in  London, 
in  the  usual  course  of  business,  from  responsible  parties,  it 
was  held  that  as  the  bonds  in  suit  were  called  for  redemp- 
tion between  October,  1878,  and  ^farch,  187l>,  they  became 
payable  on  demand  without  interest  after  the  maturity  of  the 
call,  until  the  date  for  absolute  payment,  and  as  the  title  of 
the  purchasers  of  the  bonds  was  acquired  at  a  time  when 
no  unreasonable  length  of  time  had  elapsed  after  the  ma- 
turity of  the  call,  the  title  of  thd  purchasers  shouKl  pro- 
vail  airainst  the  owners.' 

liut  if  detached  coupons  of  bonds  <jf  a  State  are  in- 
trustetl  bv  the  owners  to  a  firm  for  collection  only,  and   by 

'Texas  vs.    White,   7   Wall    7<M».        '  .MorKiiii    vh.    I'liilc^l   Stuti»H,   hu- 
*  MorRan  vh.  Unitofl  Stiif«'H,    ll.'J    pra;   Hrowii   \h     I'liitctl  StnU«H,   20 
U.S.  470  C.  CU.  Kfp    tlO. 

44 


690  Stock-brokers  and  Stock  Exchanges. 

the  latter  are,  long  after  their  maturity,  pledged  to  a 
bank  to  secure  a  debt  of  the  pledgors,  the  pledgee  acquires 
no  title  as  against  the  true  owner.' 

And  the  law  of  the  State  of  New  York  must  prevail  over 
that  of  a  foreign  jurisdiction,  Avhen  the  plaintiff  and  one  of 
the  defendants  are  residents  of  New  York,  and  the  prop- 
erty, the  subject  of  contention,  has  been  voluntarily  brought 
within  that  State.  Therefore  when  detached  coupons  of  Pa- 
cific Railroad  bonds  were  purchased  after  maturity,  in  good 
faith,  by  Stock-brokers  on  the  Stock  Exchange  at  Frankfort- 
on-the-Main,  and  were  by  them  sent  to  Xew  York  for  col- 
lection, their  title  cannot  prevail  against  the  plaintiff,  the 
true  owner,  although  bv  the  law  of  Frankfort  they  would 
acquire  a  good  title  whether  the  coupons  were  purchased 
before  or  after  maturity.^ 

3.  He  must  he  a  holder  far  valtce. 

The  rule  in  England  seems  to  be  that  one  who  takes  a  ne- 
gotiable instrument  as  a  security  for  a  pre-existing  debt  is  a 
holder  for  value  as  well  as  one  who  parts  with  value  at  the 
time  he  takes  it  ;^  and  yet,  in  De  la  Chaumette  vs.  Bank  of 
England,*  it  was  mentioned  as  a  fact  adverse  to  plaintiff 
that  although  the  balance  was  in  his  favor  at  the  time  he 
received  the  stolen  bank-note,  he  did  not  make  any  further 
advance  or  give  any  further  credit  on  the  strength  of  it ;  he 
was  considered  as  an  agent  rather  than  a  holder  for  value, 
and  failed  to  recover  against  the  bank. 

'  Stem    Brothers    vs.    Bank,    34  entitled  to  a  money  judgment  for 

La.  .\nn.  1119.  the  proceeds  of  the  coupons. 

'  WyHe  vs.  Speyer,  62  How.  Pr.  ^  Currie  vs.   Misa,  L.   R.   10  Ex. 

107.     It  was  also  held  in  that  case  153;  see  Whistler  vs.  Forster,  14  C. 

that   as  the   relief   asked   for   was  B.  (n.  s.)  248. 

equitable,  the  relief  could  be  equita-  *  9  B.  &  C.  208,  216. 
ble  only,  and  that  plaintiff  was  not 


Results  of  Negotiability :  IJoua  Fide  Holders.   C91 

It  was  said  in  Currie  vs.  Misa,'  by  Lush,  J.,  that  he  was 
not  aware  of  any  cases  directly  in  point,  and  the  only  au- 
thority he  cited  was  Story,  Promissory  Notes,  §  186. 

In  England,  as  in  this  country,  it  is  likely  that  an  exten- 
sion of  time  or  the  suspension  of  an  existing  demand  by  the 
taker  of  a  negotiable  instrument  -would  make  him  a  holder 
for  value.'^ 

The  Supreme  Court  of  the  United  States  adopted  a  simi- 
lar rule,  as  laid  down  in  Swift  vs.  IVson,"  that  one  who  takes 
commercial  paper  as  security  for  any  existing  debt  is  a  holder 
for  value,  but  certainly  such  cases  as  are  cited  below  '  do  not 
go  so  far,  because  in  them  there  is  an  extension  of  time  or 
other  forbearance  granted  to  the  debtor,  which  constitutes 
a  parting  with  present  advantage  on  the  part  of  the  creditor. 
However,  in  the  case  of  Brooklyn  City,  etc.,  R.  R.  Co.  vs. 
Bank  ^  the  subject  was  exhaustively  examined,  and  the  doc- 
trine of  Swift  vs.  Tyson  was  affirmed. 

Swift  vs.  Tyson  has  been  followed  to  a  great  extent  in 
this  country  ;^  tiiough  in  some  of  the  cases  the  important  dis- 
tinction between  taking  negotiable  paper  as  absolute  pay- 
ment and  taking  it  as  a  mere  security  of  a  i)ro-existing  debt 
is  not  kept  in  view.     The  .same  rule  is  followed  in  Connec- 

'  Supra.  '  102  U.  8.  150.     See  also  Cum- 
'  Morton  vs.  Burn,  7  Ad.  \  K\.  lit;  ininps  vs.  Mead,  Fed.  Cius.  3176. 
Baker  vs.  Walker,  14  M.  &  W.  4G.5.  •  iMsher  vs.  I'islier,  «)S  Mass.  :«)3 
.'\nd  now  by  the  English   HilLs  of  Stoddard  vs.  Kinii)all,  00  id.  469 
Exchange  Act  (1HS2)  any  anteced-  .Vtkinson  vs.   Hrooks,   20  Vt.   509 
ent  debt   or  liahilify   constitutes  a  Holmes  vs.  Smith,  10  Me.  177;  Man- 
valuable  consideration  for  a  bill  or  ning  vs.  .McClure,  ;{('»  III.  490;  and 
note.  see  a  very  thorough  discussion  of 
*  16  Pet.   1.  (his    8til)ject,    endorsing    the    view 
♦Oates  vs.  Nat.  Bank,  100  V.  S  laid  down  in  Swift  vs.  Tyson,  1  ,\m. 
2.39;    Gofximun     vs.    Simonds,    20  F.aw    Hev.    (n.    s.)    479.     See    also 
How.   U.  S.  34.'J-.370;  McCarty  vs.  Oawfoni's     An.    Neg    Inst.    Law, 
lif)Otn,  21  id    4:30.  2d  ed.  p  33,  and  cjujcs  cited. 


692  Stock-brokers  and  Stock   Kxchaiij^es. 

ticut  on  the  ground  tliat  the  taking  of  negotiable  j)a|)ei' 
as  a  C(illateral  security  is  in  the  ordinaiy  course  of  busi- 
ness.' 

In  New  York  a  purchaser  of  negotiable  jiaper  for  value 
is  one  who  parts  with  some  value,  money,  i)roperty,  or  ex- 
isting security,  or  forbears  the  exercise  of  a  valuable  right 
at  the  time  he  receives  it,  and  as  the  consideration  of  its 
acquisition,  e.  g.,  if  he  makes  a  loan  on  a  note  and  at  the 
same  time  takes  the  negotiable  paper  as  collateral  security,^ 
or  surrenders  a  security,''  or  takes  negotiable  paper  in  pay- 
ment of  a  note  already  due  which  he  surrenders  or  cancels,* 
or  who  receives  negotiable  pa[)er  as  absolute  payment  of 
any  existing  indebtedness  and  not  merely  as  security  for  its 
payment  ;^  and  the  last  case  supposed  is  stronger  if  in  con- 
nection with  it  he  pays  present  money  or  value  as  part  con- 
sideration ;^  but  if  a  creditor  receives  negotiable  paper  from 
his  debtor,  it  seems  that  no  presumption  arises  from  the 
mere  fact  of  receiving  it  that  it  is  taken  in  absolute  pay- 
ment of  the  debt.' 

The  rule  laid  down  in  Coddington  vs.  Ba}^^  that  in  order 
to  be  a  purchaser  for  vahie  there  must  be  a  parting  with 
present  value  or  with  a  present  advantage,  has  been  folio Aved 
in  this  State  up  to  a  recent  period  without  shadow  of  turn- 
ing ;  and  therefore  in  New  York,  prior  to  the  passage  of 

'  Roberts  vs.  Hall,  37  Conn.  205.  Wend.  499;  Bank  of  St.  Albans  vs. 

2  Bank  of  New  York  vs.  Vander-  Gilliland,  23  id.  311. 

horst,  32  N.  Y.  553.  '  Potts  vs.  Mayer,  74  X.  Y.  594; 

'  Chrysler  vs.  Renois,  43  X.  Y.  Bank  of  Sandusky  vs.  Scoville,  24 

209.  Wend.  115. 

«  Pratt  vs.  Coman,  37  N.  Y.  440;  "  Mechanics'  etc..  Bank  vs.  Crow, 

Brown    vs.    Leavitt,    31    id.    113;  60  N.  Y.  85. 

Meads  vs.  Mer.  Bank,  25  id.  143,  '  Bradford  vs.  Fox,  38  N.  Y.  289. 

149;  Youngs  vs.  Lee,   12  id.  551;  *  20  Johns.  637. 
Bank   of   Salina   vs.    Babcock,    21 


Results  of  Negotiability ;  Bona  Fide  Holders.    t>93 

the  Xegotiable  Instruments  Law  in  1897,  one  who  ivceived 
negotiable  paper  merely  as  security  for  a  debt  already  exist- 
ing was  not  a  purchaser  or  bolder  for  value.' 

This  principle  was  rigidly  applied  to  Stock- brokei's.  In 
the  case  in  question  defendants.  Stock-brokers  in  New 
Yoi-k,  received  from  one  Van  A.,  residing  at  Lyons,  ordei-s 
by  telegraph  to  buy  Erie  stock,  he  agreeing  to  send  margin. 
On  the  day  of  sending  and  receipt  of  telegrams  defendants 
contracted  for  the  stock  ordered,  to  be  delivereil  three  days 
thereafter,  at  which  time  they  were  dehvered  to  and  paid 
for  by  defendants.  On  the  day  of  the  sending  of  the  tele- 
grams, but  whether  before  or  after  does  not  appear,  Van  A. 
stole  S*J,yOO  of  United  States  coupon  bonds  belonging  to 
plaintiff,  which  he  forwarded  to  defendants  as  a  ''  mai-gin." 
The  bonds  were  received  by  the  defendants  before  the 
delivery  of  and  payment  for  the  stock.  In  an  action  for 
the  conversion  of  the  stock,  it  was  decided  that  defendants 
gave  credit  to  the  promise  of  Van  A.  and  not  to  the  bonds ; 
that  the  receipt  of  the  bonds  and  the  fullilment  of  the  con- 
tract for  the  purchase  of  the  stock  after  such  receipt  did 
not  make  them  honajide  hohU-rs,  and  that  they  were  there- 
fore liable;  also,  that  if  defendants,  after  receipt  of  the 
bonds,  purchased  uj)on  the  credit  thei'cof  any  stocks  for 
Van  A.,  they  were  entitled  to  liold  them  as  securitv  for  any 
loss  arisinji:  in  that  transaction  ;  but  tin*  sale  of  bonds  be- 
yond  the  amount  necessary  for  such  iiidcnmity  was  a  eon- 
version  for  which  an  action  would  lie.^ 

But  now   by  the  Negotiable   Instrtimmts   Law  (jj  .M)  an 

'  TunuT  vfl.  Trojulw.'iv,  S.'i  N.  Y.        'Tuft  vh.  CliiipiiKiii  d  :il.,  .V)  N. 

6.50;  Ljiwrciice  \h,  (lark,  .'W  id.  12S;  V.  Iiri;  h.  v.  on  lu-w  tri.-il.  MrDWiiMtm 

HriKht    VM.    JikIhoii,    17    liarlj     29;  vh.  Chapniaii,  (i:{  .N.  V.  (UTi. 
Htjilk.T  VH.  .McDonnl.I.  C,  Mill.  •»:$ 


694  Sto('k-l)n)k<  IS  aiul  Stock  Kxcliaiip^es. 

antecedent  debt  constitutes  value,  thus  overruling  the  doc- 
trine of  Coddington  vs.  Bay.' 

In  Pennsylvania  the  rule  was  the  same  as  in  New  York.''^ 
The  holder  must  have  paid  some  present  value  or  relin- 
quished some  present  advantage.^  • 

Referring  to  the  conflict  of  opinion  as  to  what  constitutes 
a  holdery<yr  value^  Leonard,  J.,  says  '  that  "twenty  years  of 
judicial  construction  have  not  fully  terminated  the  contro- 
versy in  this  State  so  ably  discussed  in  the  conflicting  cases 
of  Swift  vs.  Tyson  ^  and  Stalker  vs.  McDonald."  The  case 
last  mentioned  was  determined  in  the  late  Court  of  Er- 
rors ;  ...  it  expressly  endorses  Coddington  vs.  Buy  '  and 
Rosa  vs.  Brotherson^  as  the  law  of  this  State,  and  condemns 
the  case  of  Swift  vs.  Tyson." 

Although  the  conflict  still  continues,  yet,  as  the  States  of 
New^  York  and  North  Carolina  have  overruled  the  doctrine 
of  Coddington  vs.  Bay^  and  as  at  least  four  of  the  States 
which  have  follow^ed  that  doctrine  (viz.,  Pennsylvania, 
Iowa,  Ohio  and  Wisconsin)  have  adopted  the  Negotiable 
Instruments  Law,  whilst  of  the  States  which  have  followed 
the  ruling  in  Swift  vs.  Tyson,  five  (viz.,  Connecticut,  Mary- 
land, Massachusetts,  New  Jersey  and  Rhode  Island)  have 
also  enacted  that  law,  it  will  be  seen  that  the  day  is  fast 

*  Brewster  vs.  Schrader,  20  Misc.  ^  16  Pet.  1.     See  very  ablo  article 

480.     Crawford's    An.    Neg.    Inst,  in  30  Am.  L.  Reg.  6.S9,  upholding 

Law,  2d  ed.  p.  32.  this  decision. 

^Petrie  vs.  Clark,  11  Serg.  &  R.  »6  Hill,  93. 

377;  Lenheim  vs.  Wilmarding,  55  '  20  Johns.  637. 

Pa.  St.  73;  Bronson  vs.  Silverman,  «  10  Wend.  85. 

77  id.  94.  '  Brewster  vs.   Shrader,  20  Misc. 

^  Kirkpatrick    vs.    Muirhead,    16  480;   Brooks  vs.  Sullivan,  30  S.  E. 

Pa.  St.   117.  (N.  C.)  822. 

^Cardwell   vs.   Hicks,   37   Barb. 
458. 


Results  of  Netjotiability  ;  Hoiia  PiHc  Holders.    G'.»A 

approaching  when,  with  the  univei'sal  acceptance  of  the 
codifying  statute,  it  will  come  to  an  end. 

It  has  been  held  that  the  hona  Jide  holder  of  negotiable 
paper  may  recover  what  he  paid  therefor,  when  there  was 
fraud  in  its  origin.  Thus  in  the  case  of  Louisiana  Stiite 
bearer  bonds  which  had  been  fraudulently  reissued,  and 
which  had  been  sold  by  a  Broker  (without  disclosing  his 
principal),  the  Broker  was  held  liable  to  refund  the  price 
paid  therefor,  although  he  had  no  suspicion  that  there 
was  an\'thing  wrong  in  the  bonds.'  But  whether  there 
was  fraud  in  the  origin  of  such  paper,  or  the  maker  had 
other  equities,  the  holder  can  only  recover  what  ho 
paid.'^ 

These  decisions  are  based  upon  the  idea  that  a  holder  of 
negotiable  paper  is  only  entitled  to  protection  from  loss, 
and  should  not  be  allowed  to  make  a  profit  out  of  the  maker 
if  the  latter  has  been  wronged.'^  Thus  in  Stalker  vs.  Mc- 
Donald,^ Walworth,  Ch.,  says  :  "  This  principle  of  protect- 
ing the  ho?ia  fide  holder  of  negotiable  paper  who  has  paiil 
value  for  it,  is  derived  from  the  doctrines  of  the  courts  of 
equity  in  other  ca.ses  where  the  purchaser  has  obtained  the 
legal  title  without  notice  of  the  equitable  right  of  a  third 
person  to  the  })ropcrty.  .  .  .  And  if  he  has  paid  but  a  part 
of  the  consideration  or  value  of  the  property,  he  is  only 

'  Pugh   vs.   Moore,    10  So.   Rep.  1     Daniel    .Xcr.     Inst,     (.'ith     e<l.) 

(La.)  710.     This  deci.sion  was  fol-  §  731a 

lowed  in  Herwij;  vs.  Kichard.soii,  11        '  HiifT  vs.  Wapner,  63  Harb    21.'); 

So.   Rep.   (La.)    13.'i,   where  similar  Card  well    vs.    Hicks,    37    id.    •l.'VS; 

bonds  were  purdui-scd  by  plaintifT  Youngs  vs.  Lee,  IS  id.  ISO,  afT'd  \'l 

from    flefendaiits     thrfniuh     Stock-  \    Y.'i.'il.      ,\Iso  Chicopfe  Hank  vs 

fjrokers.     Sofi  also  .Meyer  vs    Rich-  Cliapin,    lU  Miuw.    10;  Stmldanl  vs 

anl.s,    103    U.    8.    3S0;    Rofiers    vs.  Kimball,  fiO  Nfiuw.  409 
Walsh,   12  Neb.  2«.     Rut  sec  Otis       »  To<M  vs  ShHboume.S  Hun.  .MO. 
vs.  CuUum,  92  U.  S.  12H.     Sec  also        «  0  Hill,  93 


6yG  stock-brokers  jiud  Stock  Exchanges. 

entitled   to   be   considered   as  a  hona  fide  purchaser  pi-o 
tantor  ' 

On  the  contrar}',  in  Cromwell  vs.  County  of  Sac,'^  Field,  J., 
expressed  the  opinion  that  a  purchaser  of  a  negotiable  se- 
curity before  maturity,  and  not  personally  chargeable  with 
fraud,  is  entitled  to  recover  its  full  amount  though  he  may 
have  paid  less  than  its  par  value,  and  whatever  may  have 
been  its  original  infirmity.  He  admitted  that  there  were 
many  adverse  decisions,  but  thought  it  a  sound  rule,  "  and 
in  consonance  with  the  common  understanding  and  usage 
of  commerce,  that  the  purchaser,  at  whatever  price,  takes 
the  benefit  of  the  entire  obligation  of  the  maker." 

And  in  the  case  of  Railroad  Companies  vs.  Schutte,^  it 
"was  held  that  bonds  of  the  State  of  Florida  in  the  open 
market  purported  to  be  what  they  called  for  ;  and  that  as 
the  "  Eailroad  Companies  "  had  put  them  out,  and  in  legal 
effect  endorsed  them,  they  must  to  a  hona  fide  holder  re- 
spond to  their  endorsement  commercially — that  is,  by  pay- 
ing the  bonds  according  to  their  face,  regardless  of  what 
their  maker  or  they  themselves  may  have  got  for  thera.^ 

This  seems  to  be  the  better  rule,  and  certainly  more 
consonant  to  the  general  dealings  of  Wall  Street,  where 
many  securities  are  sold  and  bought  under  the  par  value, 
upon  the  expectation  of  the  purchasers  that  they  will 
eventually  obtain  their  full  face  value.  And  the  rule  has 
now  been  incorporated  into  the  Negotiable  Instruments 
Law,  §  96  of  which  provides  that  a  holder  in  due  course 
(i.  e.  a  hona  fide  holder,  for  value,  without  notice,  and  be- 

»  This    is   the    rule    in    England.  =  96  U.  S.  51,  60. 

Edwards  vs.  Jones,  7  Car.  &  P.  633.  ^  103  U.  S.  118,  145. 

But   see  the  English   Bills  of  Ex-  *  Per  Waite,  C.  J. 
change  Act,  §  38. 


Doctrine  of  Nou-iiesotiability.  007 

fore  maturity)  may  enforce  payment  of  the  instrument  for 
the  full  amount  thereof.^  In  concluding  this  branch  of 
the  subject,  it  Avill  be  observed  that  the  Supreme  Court 
of  the  United  States  has  been  foremost  in  upholding  and 
advancing  doctrines  which  tend  to  make  commercial  securi- 
ties almost  unassaihible  in  the  hands  of  innocent  purchasers. 

III.  Non-neirotiabili<y. 

{a.)    Doctrine  of  Non-negotiahiUty. 

The  modern  doctrine  of  non-negotiability  is  simply  this  : 
that  while  the  assignee  of  a  contract  or  chose  in  action,  by 
statute  or  usage,  can  sue  upon  the  same  in  law  or  equity, 
the  action  is  subject  to  all  of  the  defences  and  equities  be- 
tween the  original  parties,  to  the  same  extent  and  in  tiie 
same  manner  as  if  they  were  themselves  before  the  court,* 
The  effect  of  this  doctrine  is,  of  course,  to  lower  tlie  com- 
mercial standing  and  value  of  non-negotiable  instruments, 
for  tlie  obvious  reason  that  a  purchaser  of  them  must  be- 
ware of  what  he  is  buying,  for  he  is  chargeable  with  notice 
of  all  defects  in  the  title  of  his  assignor,  and  of  all  defences 
or  cfjuities  which  may  exist  in  favor  of  the  jiarty  or  corjio- 
ration  against  whom  he  proposes  to  enforce  the  same.  The 
cases  which  we  give  in  the  notes  fully  illustrate  the  doctrine 
of  non -negotiability.^ 

It  is,  perhaps,  not  finall}'  settled  whether  the  assignee  of 

'  See  Crawford '.s   Aim.    X(*tx-    In.  note  discounted  by  usinn  tlieiu  aa 

Law,  pp.  9G-8.  collatenil  Hei-urity.     K:  did  not  asc 

'  Da\-i8  V8.   Bechflteiii,  69  N.  Y.  theui  for  llmt  purpose;  and  it  was 

440;  Wood  vh.  Travis,  24  Mi.s<*.  5^9.  held  that,  inahtiuich  aa  II.  rould  not 

And  see  2  .\in.   A    Eti;;.   Enc    Law,  ciifori-t*  thcni  a^ainxt  the  niort^auor, 

2<1  ed    p    lOSO,  and  easew  fite<l.  he  eouM  irivt-  no  trrealer  riirht  to  an 

'  III  Davis  VM,  Heclistein,  09  N.  Y.  aHsi;rin'e  thiin   he  hiul   hiinstif       In 

440,  a  IkjihI  iind  iiiort(;it;;e  were  in-  I'liion  Cojle^re  vs    WIhh-Ut,  (il  \.  Y, 

tnwtetl  U>  It   to  enable  hiui  to  \^vi  a  S.S,  the  uiortf;a};ee  received  his  inort' 


698  Stock-brok(Ms  and  Siock  Kxelianges. 

a  chose  in  action  takes  it  subject  only  to  the  original  ocpii- 
ties — that  is,  the  equities  between  the  assignor  and  the 
debtor — or  subject  also  to  the  latent  equities  of  third  })er- 
sons.  There  are  most  respectable  authorities  on  both  sides 
of  this  question,'  but  in  the  State  of  New  "\'()rk  the  weight 
of  opinion  at  present  is  in  favor  of  the  latter  doctrine,  that 
the  purchaser  of  a  chose  in  action  must  abide  the  case  of 
the  person  from  whom  he  buys,  for  the  reason  that  the 
holder  of  a  chose  in  action  cannot  alienate  anything  but 
the  beneficial  interest  he  possesses.  It  is  a  question  of  power 
or  capacity  to  transfer  to  another,  and  that  capacity  is  to  be 
exactly  measured  by  his  own  rights.^  But  the  doctrine  is 
subject  to  the  important  modification  that  the  real  owner 

gage  knowing  that  the  mortgagor  executed.     In  Bush  vs.  Lathrop,  22 

had  executed  contracts  of  sale  to  X.  Y.  535,  the  only  thing  in  issue 

A'arious  persons  of  portions  of  the  was  a  latent  equity  of  a  third  person, 

mortgaged  property.     It  was  held  Denio,  J.,  cited  and  discussed  all  of 

that  the  mortgage  was  a  chose  in  ac-  the  New  York  cases  and  many  oth- 

tion,  that  the  mortgagee  took  it  sub-  ers,   and  repudiated  any  supposed 

ject  to  the  rights  and  equities  of  the  distinction  between  latent  equities 

purchasers  under  the  contracts,  and  and  those  existing  between  the  orig- 

that  his  assignee  of  the  mortgage  oc-  inal  parties;  he  referred,  with  ap- 

cupied  simply  his  position  and  took  proval,  to  the  declaration  of  Lord 

subject  to  the  same  rights  and  equi-  Thurlow   in   Davies   as.    Austen,    1 

ties.     In  Ingraham  vs.  Disborough,  Ves.   2-17,  that   "a  purchaser  of  a 

47  N.  Y.  421,  tlie  decision  was  pre-  chose  in  action  must  always  abide 

cisely  the  same  on  a  similar  state  of  by  the  case  of  the  person  from  whom 

facts.     See  also  Clute  vs.  Robinson,  hebuj-s."     But  this  case  was  modi- 

2  Johns.  (N.  Y.)  612.  fied  by  Moore  vs.  Metropolitan  Nat. 

•  See  p.  1081,  2  Am.  &  Eng.  Enc.  Bank,  55  N.  Y.  41.     See  cases  cited 

Law,  2d  ed.,  and  cases  cited.  in  next  note.     Except  as  so  modified 

''This   doctrine   is   sustained   by  its  doctrine  stands.     Fairchild    vs. 

Union  College  vs.  ^^^leeler,  supra,  Sergent,  104  N.  Y.  108.     Probably 

where    it    was    held    that    the    as-  the  most  powerful  advocate  of  the 

signee  of  the  bond  and  mortgage  doctrine  that  the  a.ssignee  of  a  chose 

took   subject   not   only  to   original  in  action  is  only  subject  to  original 

equities,  but  also  to  the  rights  and  equities  was  Kent,  C.  J.     In  Bebee 

equities    of   the    third    persons   to  vs.  Bank  of  New  York,  1  Johns.  .529, 

whom  contracts  of  sale  had  been  he  says  (p.  573):  "Wlien  it  is  said 


Doctrine  of  Noii-ne2:otiabilitj .  699 

will  be  estopped  from  asserting  his  title  as  against  a  bona 
fide  purchaser  from  one  upon  whom  he  has  conferred 
aj>parent  ownership.' 

It  has  been  held,  however,  that  where  a  chose  in  action  is 
assio^ned  as  a  security  of  a  negotiable  note  which  is  itself 
transferred  before  maturity  for  value,  it  is  taken  by  the  as- 
signee free  from  all  equities,  on  the  ground  that  the  security 
partakes  of  the  nature  of  the  debt>'  Thus,  in  Kenicott  vs. 
Supervisors,^  where,  on  a  bill  to  foreclose  a  mortgage  given 
to  secure  negotiable  railroad  bonds,  it  appeared  that  the 
bonds  were  transferred  to  a  bona  fide  holder  for  value,  no 
other  or  further  defences  were  allowed  as  against  tlie  mort- 
gage than  would  be  allowed  were  the  action  brought  in  a 
court  of  law  upon  the  bonds.  And  in  another  case  in  the 
same  court,*  Swayne,  J.,  says  :  "  Equity  puts  the  principal 
and  accessory  on  a  footing  of  equality,  and  gives  to  the 
assicrnee  of  the  evidence  of  the  debt  th(?  same  rio-hts  in  refrard 
to  both.  .  .  .  This  dependent  and  incidental  relation  takes 
the  case  out  of  the  rule  ap))lied  to  choses  in  action,  where 
no  such  relation  of  dependence  exists.''  ^     So  we  shall  here- 

that  an  assij^iiee  of  a  chose  in  action  See  Merchants  Bank  vs.  Weill,  163 

takes  it  sultjpct  to  all  cfiuity,  it  is  N.  Y.  4S6. 

meant  only  that  the  oripnal  debtor  '  Moore   vs.    Metropolitan   Bank, 

can  make  the  same  defence  a^ain.st  .5.')  X.  Y.  41;  Merchants   Bank  vs. 

the  a-s-si^nee  that  lie  could  again.st  Weill,  103  N.  Y.  ISO. 

the  assignor."     He  was,  however,  '  Batesville  Institute  vs.   KaufT- 

outvotetl  hy  four  judges  to  one,  and  man,  18  ^^'all.  151 ;  Taylor  vs.  Page, 

Tompkins  and  Spencer,  JJ.,  deliv-  (i  .\llen,  KG;  Croft  vs.   Bunster,  9 

eref]   decidedly    contrary    opinions.  Wis.  504,  510. 

Kent's    opinion     was    followed    in  *  10  Wall.  452. 

James  vs.  Morey,  2  Cow.  240,  and  *Car|>crit(T  vs.  Lonpm,  jfi  W.tll. 

the  doctrine  which  it  advocates  is  271. 

HUpfKjrted  hy  Mott  vs.  T'lark,  \)  Pa.  '  \\\i\    se«'    Palmer    vs.    Yates,    ',\ 

St.  .'WH;  Bloomer  vs.  Henderson,  S  Sandf.  1.'17;  Morgan  vs.  Smith  .\m. 

Mich.    305      But    it    has    not    pre-  Organ  Co.,  73  Ind.  170;  Cornell  vs. 

vailed  in  the  State  of  .New  York.  Hichens,    II    Wi«    ',\r\:\;   KiMhcr  vs. 


700  Stock-brokers  unci  Stock  Kxchaiigcs. 

after  see  tbut  the  doctrine  of  noii-iie^otiability  has  been 
directly  applied  to  certiticates  of  stock,  and  the  transferees 
or  assignees  thereof  have  been  made  subject  to  all  defences 
existing  between  the  original  parties.^ 

(b.)   Negotiability  as  Applied  to  Stock  Certificates. 

We  come  now  to  consider  the  doctrine  of  negotiability  as 
directly  applied  to  stock  certificates ;  and  the  importance  of 
this  subject  to  Stock-brokers,  banks,  and  capitalists  cannot 
be  overstated,  because  dealings  in  these  securities  constitute 
the  bulk  of  their  business,  and  hundreds  of  millions  of  dol- 
lars are  employed  in  their  purchase  and  sale  each  week  in 
the  city  of  New  York  alone.  Stock  certificates,  as  we  have 
seen,  are  not  technically,  negotiable  instruments.  They  are 
not  promises  to  pay  money,  and,  in  a  woi-d,  lack  almost 
every  element  necessary  to  constitute  negotiability.  They 
are  certificates  showing  that  the  individual  named  therein 
is  entitled  to  a  share  in  the  capital  stock  of  a  corporation, 
to  its  profits  and  dividends  when  they  are  declared,  to  a 
proportionate  share  of  its  property  upon  its  being  wound  up 
or  dissolved.  The  courts  have  everywhere  with  marked 
unanimity  placed  them  in  the  category  of  non-negotiable 
instruments.^  And  it  has  been  held  in  the  State  of  New 
York  that  the  Negotiable  Instruments  Law  is  not  applicable 
to  stock  certificates.^ 

The  effect  of  non-negotiabiUty  we  have  already  considered, 
and  it  is  very  manifest  that  if  that  doctrine  were  to  be  ap- 

Otis,   3  Chand.  83;  Martineau  vs.  '  P.  700. 

McCollum,  4  id.  153.     See  this  sub-  ^  See  Church  vs.  Citizens  R.  R. 

ject  fully  discussed,  and  many  cases  Co.,  78  Fed.  526. 

cited,  in  1  Daniel  on  Neg.  Inst.  5th  ^  Cowles  vs.  Kiehel,  65  X.  Y.  S. 

ed.  pp.  842-8.  349. 


Negotiability  as  Applied  to  Stock  Certificates.  701 

plietl  in  its  full  force  and  rigor  to  stock  certificates,  the  con- 
sequences to  the  financial  world  would  be  most  alarming 
and  serious.  But  we  shall  see  that  while  the  courts,  on  the 
one  hand,  treat  them  as  non-negotiable,  on  the  other  hand, 
through  the  equitable  doctrine  of  estoppel,  stock  certifi- 
cates, with  a  power  to  transfer  them  endorsed  in  blank 
thereon,  can  be  dealt  in  with  almost  the  same  immunity  as 
bills,  notes,  and  other  nesfotiable  instruments.'  As  a  <reneral 
rule,  the  company  issuing  a  stock  certificate  does  not  recog- 
nize a  transfer  of  the  same  until  it  has  been  registered  on  its 
books.  This  is  ordinarily  performed  by  an  assignment  of 
the  stock  in  writing,  made  by  the  former  owner  of  it,  with 
a  power  of  attorney  to  transfer  it  on  the  books  of  the  cor- 
poration. Books  of  transfer  are  kept  for  that  purpose  ;  and 
on  the  production  of  the  above  papers  the  nominated  at- 
torney makes  the  formal  transfer,  the  old  certificate  is  can- 
celled, and  a  new  certificate  is  issued  to  the  new  owner. 
And  it  seems  the  courts  will  take  notice  of  this  general 
mode  of  transfer.- 

But  despite  the  rules  of  the  companies  requiring  transfers 
upon  their  books,  these  certificates  with  an  assignment  and 
irrevocable  power  of  attorney  executed  in  blank  theret)n  ])ass 
from  hand  to  hand  in  the  same  manner  as  other  negotiable 
instruments.  And  when  they  possess  a  market  value  they 
are  sold  with  the  same,  if  nut  a  greater,  facility  than  hills 

•  In  u  recent  leading  New  York  liability.  "     Knox  vs.   I'xlen   Muiice 

case,  the    Court    of     ApjK'uls    (per  Co.,  lis  N.  Y.  •l.'Vl.     .Vnd  .soc  Anieri- 

.■\n(lrews,   Ch.   J.)   said:    "Hut    the  run    Prens   .\.sHri.    vh.    Hnkntin;;li.nin, 

courtji  of  this  country,  in   view   of  '.i7  .Mi.sc.  12<i;  niT'd  7S  .\.  Y.  Su|)|). 

the  extennive  dealin^i.s  in  ccrtificat<«  .'JO.'j. 

of  Hhares  in   roqKirate  cnlcri»riMeH,  '  Durnill  vh.  HuHhwirk  H   Co,  75 

and  the  intermt   both  of  the  public  N.  Y.  "Jl  I  ;  .McNeil  vh.  The  Tenth 

ancl  tlic  rorfjoration,  have  n'^'*'"  t"  Nat.  Hunk,  10  .\.  Y.  325,  331. 
thcin  Hon»e  of  the  ch-incnls  of  negu- 


702  Stock-brokers  and  Stock  Exchanges. 

or  notes,  and  the  transactions  in  tlie  former  are  very  nmcli 
greater  in  volume  and  amount  than  in  those  of  the  latter 
kind.  Indeed,  it  may  be  affirmed  that  stock  certificates 
to-day  constitute  the  chief  commercial  security  of  the  age. 
And  dealings  in  them  are  not  confined  to  one  market  or 
locality ;  they  are  bought  and  sold  in  every  market  in  tlie 
world,  and  by  universal  usage  pass  from  hand  to  hand. 

In  view  of  all  of  these  considerations,  it  is  a  grave  ques- 
tion whether  the  time  has  not  arrived  for  a  change  in  the 
legal  character  of  these  certificates,  either  by  an  alteration 
of  the  language  of  the  latter  so  as  to  bring  them  within 
the  rule  of  the  law-merchant,  or  by  the  courts  receiving 
evidence  of  the  general  usages  of  the  commercial  community, 
which  usages,  as  we  have  seen,  have  been  heretofore  suc- 
cessfully invoked  to  raise  non-negotiable  securities  to  the 
full  rank  and  dignity  of  negotiable  instruments.'     This  last- 


'  See  ante,  p.  662  et  seq.  Since  investors  as  well  as  dealers,  whether 
the  text  was  written,  the  New  York  it  would  be  wise  to  remove  the  pro- 
Court  of  Appeals  has  taken  a  more  tection  which  the  true  owner  of  a 
conservative  view  of  this  subject,  stock  certificate  now  has  against 
for  the  court  in  Knox  vs.  Eden  theft,  accident,  or  robbery^.  The 
Musee  Co.,  148  N.  Y.  456  (per  system  of  registry  of  negotiable 
Andrews,  C.  J.),  said:  "It  is  plain,  bonds,  which  pr  vails  to  a  consid- 
we  think,  that  the  argument  in  erable  extent,  authorized  bj'  stat- 
support  of  the  judgment  in  this  utes  of  some  of  the  states,  and  of 
case,  based  on  the  complete  nego-  the  United  States,  seems  to  indicate 
tiability  of  stock  certificates,  is  not  a  tendency  to  restrict  rather  than  to 
supported  by,  but  is  contrary  to  the  extend  the  range  of  negotiable  in- 
decisions. If  public  policy  re-  struments."  But  see  Masury  vs. 
quires  that  a  further  advance  should  Bank,  93  Fed.  Rep.  at  p.  607. 
be  made  in  more  completely  as-  In  view  of  the  decision  in  German 
similating  them  to  commercial  Savings  Bank  vs.  Renshaw,  78  Md. 
paper  in  the  qualities  of  negotia-  475,  a  change  in  the  language  of  the 
bility,  the  legislature  and  not  the  transfer  usually  endorsed  on  the 
courts  should  so  declare.  .  .  .  back  of  the  certificate  may  help  to 
It  may,  perhaps,  be  doubted,  taking  enlarge  the  negotiability  thereof, 
into  consideration   the  interest   of  It  was  in  that  case  held  that  as  a 


Negotiability  as  Applied  to  Stock  Cernficates.   TUo 

mentioned  means  has  been  attempted,  but  S(i  far  unsuccess- 
fully. In  the  case  of  Aull  vs.  Colket  *  Stock-brokers  in  the 
ordinary  course  of  their  business  received  certain  coi-titicates 
from  a  clerk  who  had  abstracted  them  from  a  box  belong- 
ing to  his  employers,  and  they  offered  to  show  '*  that  the 
general  custom  among  banks  and  Brokers  was  to  transfer 
title  to  stocks,  especially  non-dividend-paying  stocks  as 
these  were,  on  certificates  and  powers  signed  in  blank,  and 
that  this  class  of  securities  has  assumed  an  important  rela- 
tion to  trade""  and  commerce  ;  that  thousands  of  such  shares 
are  circulated  daily  on  the  Stock  Exchanges  of  New  York 
and  Piiiladelphia,  and  pass  by  mere  delivery  of  certificates 
and  powers;  that  by  the  general  custom  among  lirokei-s 
and  Bankers  these  certificates  and  powere  pass  by  delivery 
the  same  as  commercial  paper  or  coupon  bonds  ; "  but  the 
usage  was  rejected. 

A  somewhat  similar  case  of  the  rejection  of  a  Stock  Ex 
change  usage  occurred  in  Taylor  vs.  Grant  Ind.  Benin.  R. 
Co.,-  where  an  owner  of  £2  and  £20  shares  desired  to  sell 
the  former,  and  for  that  purpose  gave  his  Broker  transfei-s, 
which  were  blank  as  to  name  of  transferee  and  as  to  value 
and  distinctive  numbers  of  the  shares.  The  Broker,  in  fac-t, 
sold  the  £20  with  fraudulent  intent.  For  the  jnirpose  of 
giving  validity  to  the  transaction  and  compellingthe  owner 
to   stand    bv    the    wrongful    ami  unauthorized    act  of  th<^ 


bank  (a  pledKoe  <>i  8tock)  hud  no-  Int.    M.     To   winic   offoct    is    l^iisi 

tice    from    the    trunsfer    that    tlio  Hirniin^hain  Land  Co.   vs.  Dcnni.s, 

stock    wa«   for  nale  only,   and   not  S')  .\ hi.  .')<).'■).     S<f  also  SIhtwoikI  vs. 

for  jilcilgr,   it  wa-s  not  a  hona  lide  .Meadow,   r)()  ("al.    lU;    Winter   v«. 

holder.     Se<?,   however,   Clilhert   vh.  Helinont.  M  Cal.    VZS;  liarntow  vs. 

Krie    BldK.    Ahau.,    .«)     .\tl.    (Pa.)  Savap-,  (H  Cal.  :iKS. 

201  eontru.  '  5  Jur.  (n,  8.)  1087. 
'  2  \Vc<!k.  .NotcN  Van.  Wll;  X\  \a%. 


704  Stock-brokers  and  Stock  Exchanges. 

Broker,  it  was  claiined  to  bo  the  universal  i")ractico  of  tlxi 
Stock  Exchange  to  execute  such  transfers  in  blank,  at  least 
as  to  the  tranferee's  name.  The  court  assumed  the  practice 
to  exist,  but  refused  to  sanction  it,  and  remarked  :  "  It  is 
clear  that  these  shares  were  not  transferred  by  him  [the 
owner],  for  the  law  is  settled  upon  this  subject,  and  the 
safety  of  property  depended  upon  it.  This  case  is,  indeed, 
a  remarkable  instance  of  the  value  of  the  existing  rule  of 
law  upon  the  subject.  To  permit  the  practice  of  Stock- 
brokers and  Stock-jobbers  to  prevail  against  such  a  rule 
was  entirely  out  of  the  question.  Brokers  must,  like  all 
other  persons,  be  bound  by  the  law  and  must  observe  its 
rules." 

A  similar  usage  was  also  condemned  in  Denny  vs.  Lyon,^ 
where  it  was  proved  that  the  name  of  the  transferee  of  stock 
was  usually  not  inserted  in  the  power  of  attorney,  and  that 
it  was  more  convenient  not  to  have  it  inserted,  and  the 
court  remarked :  "  "We  know"  that  this  is  the  commercial 
usage.  It  was  probably  orginated  by  the  banks.  If  not, 
they  have  countenanced  it  and  thus  brought  people  to 
practise  it.  And  y«;t  it  is  a  vicious  usage,  w^hich  no  considera- 
tions of  convenience  are  sufficient  to  justify.  Malus  usus 
aholendtis  est.  A  power  of  attorney  signed,  sealed,  and 
delivered,  what  is  it  but  a  finished  legal  instrument  ?  Who 
may  alter  it  to  the  prejudice  of  another  without  incurring 
liability  to  the  charge  of  forgery  ?  If  commerical  usage 
permit  the  attorney  to  insert  the  names  of  P.  &  W.  and 
then  erase  them,  then  insert  the  name  of  W.  N.  and  next 
erase  it,  and  then  insert  his  own  name  as  agent,  what  other 
legal  instrument  may  not  commercial  usage  tamper  with  in 

>  38  Pa.  St.  98.     But  see  Scollans  vs.  Rollins,  179  Mass.  346. 


Negotiability  as  Applied  to  Stock  Certitieates.   TOo 

like  manner?"  The  usage  was  not  sanctioned,  and  the 
authority  of  the  attorney  was  held  to  be  exhausted  bv  the 
insertion  of  the  single  name  originally  conteniplalod  by  the 
owner  of  the  stock. 

But,  notwithstanding  the  refusal  of  the  courts  to  receive 
such  evidence  and  to  invest  these  certificates  with  the  attri- 
butes of  negotiability,  the  modern  decisions  have,  as  we 
have  said,  practically  placed  them  upon  an  equality  with 
bills,  notes,  and  other  negotiable  instruments ;  and  we  shall 
find  that  a  honafide  purchaser  for  value  of  such  certificates, 
with  powers  of  sale  endorsed  in  blank  thereon,  can,  with  two 
or  three  exceptions,  to  which  we  shall  refer,  hokl  them  even 
against  the  true  and  rightful  owner;  and  this  proposition 
forms  the  principal  exception  to  the  rule  that  the  assignee 
of  a  negotiable  chose  in  action  takes  it  subject  to  existing 
equities.* 

'  The  principal.  Endish  authori-  Hun,  316;  McXeil  vs.  Tenth  Xat. 

ties  for  this  proposition  are  as  fol-  Bank,  46  N.  Y.  325;  Commercial 

lows:  Ex  parte  Swan,  7  C.  B.  (n.  s.)  Bank  vs.  Kortright,  22  Wend.  348; 

400;  Swan  vs.  North  British  Austra-  Moore  vs.  Metropolitan  Xat.  Bank, 

lasian  Co.,  7  H.  &  X.  603;  same  vs.  55  X.  Y.  41;  X.  Y.  it  Xew  Haven  R. 

same,  2  H.  &  C.   175;  Taylor  vs.  R.  Co.    vs.  Schuyler,  34  X.  Y.  30; 

Great  Indian  Peninsula  Ry.  Co.,  5  Weaver     vs.    Barden,     49     X.    Y. 

Jur.  (n.  s.)  10S7;  1  Story  Eq.  375,  2S6;  Leitch  vs.  Wells,  48  X.  Y.  585; 

§390;Pearsonvs.  Scott,  L.  R.  9Ch.  Zulick  vs.  Markham,  0  Daly,  129; 

Div.  198;  38  L.  T.  (n.  s.)  747;  26  W.  Printing  Co.  vs.  Washburn,  77  .\.  1). 

R.  796;  Rumhall  vs.  Metropolitan  280;  Dickinson  vs.  Dudley,  17  Hun, 

Bank,  L.  R.  2  Q.  B.  Div.  194;  46  L.  509;  Matthews  vs.  Mjws.  .Nat.  Bank, 

J.  Q.  B.  Div.  346;  36  L.  T.  (n.  k.)  10  .Ml).  L.  J.   199;  Wo<xl's  .\pi)eal, 

240;   25   W.    R.    .306;   Goodwin   vs.  8  Week.  Xotes  Cjus.  441 ;  92  Pa.  St. 

Roharts,  45  L  J.  E.\.  Div.  748;  L.  R.  379;  Burton's  .\pj>eal.  id.  .m");  s.  r. 

I  App.  Cas.  476;  35  L.  T.  (n.  s.)  179  93  Pa.  St.  214;  Ellis's  Ap|M»al.  id. 
H.  L;  Easton  vs.  Bank,  34  Ch.  .5.38;  AuU  vs.  Cnlket,  2  Week  NotP« 
D.  93.  But  sec  Colonial  Bank  vs.  Cas.  322;  33  I^cr.  Int.  44;  Momly  vs. 
Cady,  15  App.  Cas.  267.  Bank,    3    Week.    Notes    Cas     IIS; 

The  principal  American  authori-    ThompHnii  vs.  Tojand,  48  Cal.  99; 
ties  are  .'ls  foliowH:  Bank  vs.  J.anier,    Winter  vm    Minintr  Co  ,  7  Rep.  3.'V2; 

II  Wall    369;  Biidd  vh    Monroe,  IS    Tome  vs    F'arktTHhurgh  R.   R    Co, 

40 


700  Stock-brokers  and  Stock  Exchanges. 

The  general  rule  applicable  to  property  other  than  ne- 
gotiable instruments  undoubtedly  is,  that  the  vendor  or  pled- 
gor can  convey  no  greater  right  or  title  than  he  has.  Nemo 
dat  quod  non  hubet.  But  this  maxim  is  applicable  to  a  sim- 
ple transfer  from  one  party  to  another  where  no  other  ele- 
ment intervenes.  It  does  not  interfere  with  the  well-es- 
tablished principle  that  where  the  true  owner  holds  out  an- 
other, or  allows  him  to  appear,  as  the  owner  of,  or  as  having 
full  power  of  disposition  over,  the  property,  and  innocent  third 
parties  are  thus  led  into  dealing  with  such  apparent  owner, 
they  will  be  protected.  Their  rights  in  such  cases  do  not 
depend  upon  the  actual  title  or  authority  of  the  party  with 
whom  they  deal  directly,  but  are  derived  from  the  act  of 
the  real  owner,  which  precludes  him  from  disputing  as  against 
them  the  existence  of  the  title  or  power  which,  through  neg- 
ligence or  mistaken  confidence,  he  caused  or  allowed  to  ap- 
pear to  be  vested  in  the  party  making  the  conveyance.' 

It  may  therefore  be  stated  as  a  well-settled  proposition 
that  where  the  owner  of  a  certificate  of  stock  with  a  power 
of  attorney  in  blank  endorsed  thereon,  attached  thereto,  or 
connected  therewith,  intrusts  it  to  an  agent,  servant,  or 
other  person,  so  that  by  the  recognized  usages  of  business  it 
will  pass  from  hand  to  hand,  or  the  owner  is  guilty  of  neg- 
ligence in  respect  thereto,^  a  bona  fide  purchaser  or  holder 
Avithout  notice  will  be  protected  in  his  possession,  although 

39  Md.  36,  17  Am.  Rep.  540;  Mount  cases    cited    therein;    Graves    vs. 

Holly  Turnpike  Co.  vs.  Terrel,  17  Mining  Co.,  81  Cal.  at  p.  325;  Real 

N.  J.  Eq.  117;  Prall  vs.  Tilt,  2S  N.  J.  Estate  Trust  Co.  vs.  Bird,  90  Md. 

Eq.  479;  Bridgeport  Bank  vs.  R.  R.  229;  Westinghouse    vs.    Bank,    46 

Co.,  30  Conn.  231;  .Vtkinson  vs.  At-  Atl.  380. 

kinson,    90    Mass.    15;    Garvin    a's.  '  Per    Rapallo,    J.,    McNeil    vs. 

Wiswall,  83  111.  215.     See  also  Cin-  Tenth  Nat.  Bank,  46  N.  Y.  325. 

cinnati    &c.    R.    Co.    vs.    Citizens'  '  AuU  vs.  Colket,  2  Week.  Notes 

Bank.  43  L.  R.  A.  777,  and  manv  Cas.  322;  33  Leg.  Int.  44. 


Negotiability  as  Applied  to  Stock  Certifleates.  TOT 

the  agent  or  person  to  whom  the  certificate  has  been  in- 
trusted has  diverted  it  from  the  purposes  for  which  it  was 
committed  to  him,  or  has  been  guilty  of  fraud  or  a  breach 
of  trust  in  relation  thereto.^ 

The  rights  of  a  bona  fide  holder  as  against  the  true  owner 
of  the  stock,  to  whom  the  ap[)arent  holder  has  either  sold 
or  pledged  it,  do  not  depend  on  the  negotiable  character  of 
the  certificates,  but  rest  on  a  different  principle — viz.,  that 
one  who  has  conferred  upon  another,  by  a  written  transfer, 
all  the  indicia  of  ownership  of  property,  is  estopped  to 
assert  title  to  it  as  against  a  third  person  who  has  in 
good  faith  purchasel  it  for  value  from  the  apparent  owner. 
And  this  is  a  most  just  and  reasonable  rule,  for  when  an 
owner  of  one  of  these  certificates  executes  a  blank  assign- 
ment, with  a  power  of  attorney  to  transfer  the  stock  on  the 
books  of  a  corpcn'ation,  such  as  is  ordinarily  used,  without 
any  notice  on  the  face  of  the  same  that  it  is  intended  U)  be 
restricted  to  a  particular  purpose,  he  commits  a  comnuTcial 
act.  If  he  then  intrust  it  to  a  faithless  agent,  or  if,  by  his 
own  negligence,  the  certificate  gets  into  circulation  and  into 
the  hands  of  an  innocent  i)arty,  the  owner  should  suffer. 

'  See  authorities  cited  ante,  p.  705.  K/uno  principle,  whore  ;i  trustee  i.s 
But  where  a  liroker  received,  in  llie  chithed  with  full  power  to  man- 
course  of  trade,  a  transfer  in  blank  a;^e  and  control  the  trust  estate, 
of  stock  which  had  in  fact  been  an  a«si>;nment  i)y  him  of  a  mort- 
stolen  and  sold,  in  a  mining  com-  ^a^e  impressed  with  the  trust  to 
pany  or>!;aniz<,*d  under  the  laws  of  a  bojia  fulc  purchaaer  cannot  bo 
California,  held,  that  he  was  ]\n\Ac  impeached  by  the  cestui  <pie  trust 
to  the  true  owner  for  its  vulue  and  (iJillayc  vs.  Commercial  Hank,  ."il 
damages  nk'rci<h  vs.  .Marye,  9  Nev.  N.  Y.  .'Mr));  and  Grovj-r,  J  ,  states 
312;  .Swim  vs.  Wilson,  0  likK.  A"  L.  J.  the  reason  of  the  exception  in  the 
2H0,  and  article  on  .Stock-l>rokcrs'  foliowin;;  words  (Moore  vs.  ^!etr^^- 
rc«ponsibiliti«'S  in  suih  cases,  id,  politan  .\at.  Hank,  S.*)  \.  Y.  11): 
27.'?;  and  see  Han^^or  Ac.  C<i.  vh.  "One  rea«o!i  why  an  owikt  of  cor- 
Itobin«on,.'j2Fcfl  Rep  .')20)    Onthe  porate  shanks  or  of  ^oods  and  chat- 


708  Stoek-brokors  and  S<oek  Excliaiifijes. 

Tho  wholt^  question  tlien  resolves  itself  into  one  of  notice^ 
Had  the  purchaser  or  holder  of  the  stock  certificate  notice 
of  the  rights  of  the  true  owner  ?  TIad  he  knowledge  of  the 
jnii'pose  for  which  the  owner  placed  it  in  the  hands  of  his 
agent  ?  If  he  had  no  notice,  the  law  protects  hhn  ;  if  other- 
wise, it  will  not  protect  him. 

"We  shall  now  proceed  to  consider  what  notice  is  sufficient 
to  prevent  the  true  owner  from  being  deprived  of  his  title  ; 
and  the  cases  upon  tiiis  subject  resolve  themselves  into  three 
classes :  1st,  those  in  which  the  notice  appears  on  the  face 
of  the  certificate ;  2d,  where  it  is  dehors  the  certificate,  and 
is  gathered  from  the  circumstances  surrounding  the  transac- 
tion ;  and,  3d,  those  cases  in  which  the  hona  fule  purchaser 
or  holder  acquires  the  right  to  hold  the  certificate  by  reason 
of  the  neglifjence  or  carelessness  of  the  owner. 

1.  Cases  in  which  notice  appears  cm  the  face  of  the  certifi- 
cate. 

It  is  a  familiar  and  well-established  rule,  both  in  England 
and  the  United  States,  that  persons  who  deal  with  or  receive 
written  instruments  are  chargeable  with  constructive  notice 
of  their  contents  and  of  their  legal  effect,  and  are  bound 
thereby,  Avhether  they  examine  them  or  not.^ 

In  Baring  vs.  CorrieHhe  defendants  bought  goods  from 

tels  who  has  conferred  upon  another  real  title  ajjainst  an  innocent  pvir- 

the    apparent    ownership,    without  chaser  from  one  clothed  by  him  with 

transferring  to  him  a  valid  title,  was  all  the   indicia  of   ownership   and 

held   precluded  from   asserting  his  power  of  disposition." 

title  against  a  hona  fide  purchaser  '  Farmers,' etc.,  Nat.  Bank  vs.  Lo- 

from  such  apparent  owner  is  that  gan,  74  X.  Y.  568,  580;  City  Bank 

such  purchase  was  made  upon  the  vs.  Rome,  Watertown,  etc.,  R.  Co., 

faith  of  the  title  which  he  had  ap-  44   id.    136;   Turner  vs.    Liverpool 

parently  given,  and  that  it  would  Docks,  6  Ex.  543. 

be  contrary'  to  justice  and  good  con  ^  2  B.  S:  .\ld.  137. 
.science  to  permit  him  to  a.s.sert  his 


Negotiability  as  Applied  to  SUn-k  Certifloates.    T<»i» 

one  whom  they  knew  to  be  both  a  inerchaiii  aiul  ISroker, 
but  at  the  time  of  the  sale  they  received  from  him  a  sold 
note,  exactly  in  proper  form,  supposing  him  to  have  sold  in 
his  character  of  Brokei-.  It  was  held  that  this  was  suffi- 
cient notice  to  put  them  upon  inquiry  for  the  })rincipal,  and, 
having  failed  to  make  such  inquiry,  they  were  not  permitted, 
in  settlement  for  the  goods,  to  offset  a  claim  which  they  had 
against  the  Broker,  but  were  obliged  to  pay  the  principal 
in  full.  In  this  case  the  owner  had  not  intrusted  the  Broker 
with  possession  of  the  goods,  and  thereby  enabled  liim  to 
appear  as  oAvner,  and  therefore  it  was  distinguished  from 
the  early  English  case  of  Hern  vs.  Nichols,'  where  the  owner 
was  held  answerable  for  the  deceit  of  his  factor,  and  Ilolt, 
C.  J.,  said  that,  "  seeing  somebody  must  be  a  loser  by  this 
deceit,  it  is  n)ore  reasonable  that  he  that  employ's  and  puts 
a  trust  and  confidence  in  the  deceiver  should  be  a  loser  than 
a  stranger.''  ^ 

In  Pannell  vs.  Ilurh-y  ^  one  P  conveyed  in  trust  to  C.  B. 
ik  D,  who  opened  a  trust  account  with  bankers,  headed  in 
their  books  *•  II.  P.'s  Estate."  The  bankers  dissolved,  and 
defendant  continued  the  business,  receiving  the  old  books 
and  carrying  on  the  trust  account.  I),  one  of  the  trustees, 
drew  out  of  the  trust  account  and  paid  a  deficit  in  his  pri- 
vate account.  Held,  that  defendant  was  chargeable  with 
notice  by  the  heading  of  the  trust  account, //</«/•  <///(/,  and 
must  settle  with  the  Pannell  estate,  independently  of  any 
set-off  he  had  against  the  trustee  D. 

Taylor  vs.  (ireat  Ind.  Penin.   ii.  Co.*  was  a  case  of  ccjn- 

'  1  Snlk.  289.  tunnMl  on  tho  simn-  pniiit   iis  Hcrii 

'  Gcor«e  v«.  ClaKCtt,  7  T.  II.  S-W,    vh.  .\ichobi. 
and  Uahone  vs    WilliuiiiH,  i.l.  lim,        '  _' Cill.  211. 

«5Jur.  (n.  8.)  1087. 


710  Stock-brokors  and  Stock  Exchaiijjes. 

flicting  equities,  where  either  tlu'  ow  iut  of  stock  or  its  pur- 
chaser must  suffer  loss  through  the  fraud  of  a  Broker  em- 
ph)yed  by  the  foinier ;  and  the  purchaser  contended  that 
the  owner  ought  to  bear  it  because  he  had  been  neghgent 
in  executing  the  transfer  of  the  stock  in  blank,  and  thereby 
made  it  possible  for  the  Broker  to  effect  the  fraud  ;  but  it  was 
held  that  inasmuch  as  the  transfers,  at  tlio  time  they  were 
delivered  to  the  purchaser,  were  still  in  blank  as  to  the  value 
and  distinctive  numbers  of  the  shares,  and  the  name  of  the 
transferees,  they  carried  on  their  face  constructive  notice  of 
their  invalidity  to  all  concerned.  The  court,  however,  in 
this  case,  did  reflect  upon  the  plaintiff  for  the  imprudent 
manner  in  which  he  had  executed  the  transfers,  and  therefore 
allowed  hiiu  no  costs.  This  case  would  seem  to  teach  that 
w^here  equities  ai'e  to  be  balanced  between  an  owner  and  a 
purchaser  of  stock,  both  of  whom  have  been  negligent,  and 
one  of  whom  must  suffer  loss  through  the  fraud  of  another, 
the  scale  will  turn  in  favor  of  him  wdio  has  been  least  neg- 
ligent. 

The  registered  proprietors  of  stock  have  the  legal  title  to 
it ;  and  therefore  an  instrument  of  transfer  by  them,  or  any 
other  writing  which  suggests  who  are  the  registered  proprie- 
tors, is  sufficient  to  put  a  purchaser  upon  the  inquir}'-  whether 
they  are  not  also  the  absolute  and  equitable  owners.  Ac- 
cordingly,* a  purchaser  is  not  justified  in  dealing  with  the 
solicitor  of  executors  as  a  principal,  because  he  received  no- 
tice from  the  form  and  terms  of  the  transfer  wdiich  was 
signed  by  the  executors,  and  from  the  accompanying  letter, 
that  they,  and  not  the  solicitor,  had  the  legal  title. 

In  Shropshire  Union  R.  tt  C.  Co.  vs.  The  Queen  ^  certifi- 

'  Pearson  vs.  Scott,  L.  R.  9  Ch.  D.        '  L.  R.  7  H.  L.  Cas.  496. 
198. 


Negotiability  as  Applied  to  Stock  Ortitlcates.  711 

cates  of  railway  stock  were  intrusted  to  one  of  the  tlirect- 
oi-s,  who  was  also  the  Banker  of  the  companv,  and  he  also 
stood  on  the  register  of  the  company  as  the  owner  of  the 
said  stock.  He  borrowed  money  from  R.,  and  deposited 
the  certificates  with  him  as  security,  but  R.  died  without 
having  applied  to  be  registered  as  owner.  His  widow  and 
executrix  made  such  application,  and  was  refused,  on  the 
ground  that  if  E.  had  made  proper  inquiries  he  would  have 
found  that  his  transferor  was  onlv  a  trustee ;  that  ne'i-li- 
gence  sufficient  to  affect  their  equitable  title  could  not  be 
imputed  to  the  other  directors  and  the  company  in  thus 
allowing  the  apparent  title  to  rest  in  the  one  director  ;  and 
that  consequently  the  equitable  title  of  R.  could  not  pre- 
vail against  the  earlier  equitable  title  of  the  company.  And 
Lord  Cairns,  it  seems,  was  of  the  opinion  that  any  one  deal- 
ing in  stock  or  corporate  property  was  always  bound  to 
make  inquiry  as  to  the  actual  ownership  and  condition  of 
the  title  ;  for  he  says,'  "  He  ought  to  have  known  that  al- 
tiiough  II. 's  name  appeared  upon  the  register  as  the  owner 
of  these  shares,  and  although  11.  could  present  to  him  the 
certificates  of  this  ownership,  still  it  was  perfectly  possible 
either  that  these  shares  were  the  beneficial  property  of  II. 
himself,  or  that  they  were  the  property  of  some  other  per- 
son." In  brief,  that  the  only  way  he  could  |Kirfect  his  title 
was  to  go  to  the  couqiany  and  have  a  transfer  of  those 
shares  from  If.'s  name.'  U)  his  own  in  tin'  register.  Hut  it 
is  questionable  whether  the  conclusion  reaclunl  in  this  case 
is  not  in  conflict  with  the  best  authorities  both  in  Knglarxl 
and  in  the  United  States. 

So  where  the  incompleUj  and  non  negotiable  bonds  of  a 


P.  .S05. 


712  Stock-brokei-s  and  Stock  Exchanges. 

railroud  coipuiulion  wei'e  conditioned  for  the  payment  of 
either  of  two  specified  kinds  and  amounts  of  national  cur- 
rency, to  be  determined  by  the  phice  to  be  fixed  for  their 
payment,  and  contained  a  ckiuse  autlioriziiig  the  president 
of  the  corporation  to  fix,  by  his  endorsement,  such  place  of 
payment,  and  the  bonds  were  endorsed  in  l)lank  l)y  the 
president,  without  fixing  the  place  of  payment,  the  lona 
fide  j)urchaser  of  such  bonds  was  held  chargeable  with  no- 
tice of  their  defects,  and  could  neither  acquire  nor  convey 
a  title  to  the  bonds.^ 

A  certificate  of  stock  containing  the  words  "  in  trust," 
or  other  equivalent  words,  is  constructive  notice  of  a  trust 
to  all  who  deal  wuth  the  certificate,  and  puts  them  upon  in- 
quiry as  to  the  authority  of  the  trustee  to  dispose  of  the 
stock.-^  If  such  a  certificate  is  pledged  by  the  trustee  to 
secure  his  own  debt,  the  pledgee  is  by  the  terms  of  the  cer- 
tificate put  upon  inquiry  as  to  the  character  and  limitations 
of  the  trust/ 

'  Ledwich  vs.  McKim,  53  N.  Y.  assignment  without  any  inquiry  for 
308.  the  cestui  que  trust,  or  for  his  assent 
==  Budd  vs.  Munroe,  18  Hun,  316;  to  the  transfer.  Geyser-Marion 
Sprague  vs.  Cocheco  xMfg.  Co.,  10  Gold  Mining  Co.  vs.  Staric,  106  Fed. 
Blatchf.  173;  Ga.ston  vs.  Amer.,  etc.,  Rep.  558,  and  many  ca.ses  cited. 
Bank,  29  N.  J.  98.  '  Shaw  vs.  Spencer,  100  Mass. 
If  Stock-brokers  at  all  times  382;  Duncan  vs.  Jaudon,  15  Wall, 
knew  that  securities  placed  with  165;  Swan  vs.  Produce  Bank,  24 
them  for  speculative  purposes  stood  Hun,  277;  Atkinson  vs.  Atkinson, 
in  the  name  of  one  of  their  cus-  90  Mass.  15,  where  same  rule  is  ap- 
tomers  as  trustee  for  the  other,  they  plied  to  a  guardian.  Compare  Ash- 
are  chargeable  with  notice  of  the  ton  vs.  Atlantic  Bank,  85  Ma.ss.  217; 
trust,  and  are  bound  to  inquire  into  2  Perry  on  Tru.sts,  §§  814,  815,  and 
the    ownership    of    the    property,  cases  cited. 

Leake  vs.  Watson,  58  Conn.  332.  And  see  the  recent  case  of  Farm- 
It  is  actionable  negligence  for  a  ers'  Bank  vs.  Diebold  Safe  &  Lock 
corporation  to  cancel  a  certificate  of  Co.,  58  L.  R.  A.  620,  and  note,  and 
its  stock  and  transfer  the  stock  on  cases  cited  at  id.  624. 
the  signature  of  the  trustee  to  the 


Kegotiability  as  Applied  to  Stock  Certificates.  718 

The  old  rule  seems  to  have  been  that  ordiuarih'  it  was  a 
breach  of  trust  for  a  trustee  of  stock  to  transfer  it,  of  which 
a  purchaser  was  chargeable  with  notice ;  and  therefore  the 
cestui  que  trust  was  entitled  to  have  the  individual  stock 
restored  to  him.^ 

Brewster  vs.  Sime^  seems  to  be  contrary  to  the  general 
current  of  authority,  for  it  holds  that  the  addition  of  the 
word  "  trustee  "  after  the  name  of  a  person  to  whom  stock 
is  transferred  is  not  sufficient  to  put  persons  dealing  with 
the  trustee  upon  inquiry  as  to  the  trustee's  title  or  as  to  the 
owner's  equitable  right.  Crockett,  J.,  in  his  opinion,  as- 
signs as  a  reason  for  his  position  that  "■  considerations  of 
public  policy  and  common  justice  demand  that  when  stock 
is  placed  in  the  name  of  a  trustee  under  these  circumstances, 
the  secret  owner  sliall  be  bound  In'  the  act  of  his  trustee 
dealing  with  persons  who  have  no  actual  notice  of  the  rela- 
tions between  the  parties."''  And  although,  as  we  have 
said,  this  j)osition  is  exceptional  to  the  general  run  of  the 
cases,  many  strong  reasons  may  be  urged  in  su[)port  of 
it.  But  this  and  the  other  decisions  cited  "have  not  been 
followed  "and  the  reason  of  the  case,  the  later  decisions 
of  the  courts,  and  the  declarations  of  the  text  books  have 
united  to  make  the  pi-oposition  we  have  announced  the 
established  law  of  the  land."'* 

But  an  executor  is  not  under  the  same  disability  as  a 
trustee,  and  a  pui-chase  of  stock  from  him  is  ordinarily  valid, 
though  alfected  with  some  pcculiai-  trust  or  I'tpiity,  because 

'Harrison    vh.    Ilurri«ori,   2   Atk.  more,  1' Md.  l.W,  171 .      Hut  tin- lat- 

121.  tor  viuic  wtm  ovt-rruItHl  in  .Murl>ury 

»  12  Ciil.   130.     AikI  hoc  Stiiison  vh.  Khleii,  72  Md.  2(t(>,  21H. 
v».Tlionitoii,.'>«G:i.  :{77.  « .Marion  Co.   vh    Stark,  10(1  IV.I 

•To  harne  ffTcct,   TliompHoii    vh  Hop    .'i.'iS      S<«o  alno  Jonen  vh    \\  il- 

Toluml.  Isr.il  'M;  .Mhcrt  vr,   Haiti-  liaius,  21  Ueuv.  02. 


714  Stock-brokers  and  Stock  Exchanges. 

the  purchaser  cannot,  be  presumed  to  know  tluit  the  sale  is 
not  required  in  order  to  discharge  the  testator's  debts,'  it 
being  the  executor's  primary  duty  to  dispose  of  assets  and 
settle  the  estate,^  which  differs  in  this  respect  from  the  duty 
of  a  trustee,  which  is  that  of  custody,  and  not  of  adminis- 
tration or  sale; ^  but  if  the  purchaser  from  an  executor  has 
a  reasonable  ground  for  believing  that  he  intends  to  misap- 
ply the  proceeds,  he  will  not  be  protected.* 

In  Pennsylvania  the  highest  court  of  the  State  in  two 
cases,  almost  simultaneously  reported,  has  fully  secured  the 
rights  of  a  hona  fide  holder  or  purchaser  of  stock  certifi- 
cates. 

In  Wood's  Appeal,^  G.  R.  W.,  one  of  several  executors, 
abstracted  from  a  fire-proof  safe  certificates  of  stock  be- 
longing to  the  estate  without  the  knowledge  of  his  co-ex- 
ecutors. These  certificates  stood  in  the  name  of  C.  S.  W., 
the  testator,  and  were  accompanied  by  a  blank  bill  of  sale 
and  power  of  attorne}'  to  sell  and  transfer,  signed  "  G.  R.  "W., 
acting  executor."     G.  R.  W.  was  engaged  in  stock  specula- 

*  Hutchins    vs.    State    Bank,    ,53  ^  Bayard  vs.  Farmers,'  etc.,  Bank, 

Mass.  421.  52  Pa.  St.  232;  Jaudon  vs.  Xat.  City 

'  Leitch  vs.  Wells,  48  X.  Y.  585;  Bank,  8  Blatohf.  430. 

Wood's   Appeal,    92    Pa.    St.    379;  *  Lowry     vs.     Commercial,   etc., 

PraU  vs.  Tilt,  28  N.  J.  Eq.  479.  Bank,  Taney's  Dec.  310. 

So    also    Stock-brokers    are    not  And  when   Brokers  have  notice 

neclicent  if  thej-  sell  bonds  at  the  that  an  executor  transfers  .stock  to 

instance  of  a  trustee,  who  misap-  secure  a  personal  loan,  they  cannot, 

propriates  the  proceeds,   although  on  purchasing  the  stock,  compel  the 

the  bonds  stood  in  the  name  of  a  corporation  to  transfer  it  to  them, 

prior  deceased  trustee  who  was  also  or  recover  damages  for  its  refusal  to 

executor  of  the  will  under  which  the  do  so.     DaAns  vs.   National  Eagle 

trust  was  created,  when  it  is  not  Bank,  50  Atl.  Rep.  (R.  I.)  530. 

shown  that  they  were  aware  of  the  *  Wood  vs.  Smith  (s.  c),  92  Pa. 

latter's  death,  or  of  the  then  condi-  St.  379;  Burton's  Appeal,  93  id.  214. 
tion  of  the  trust  property.     Cooper 
vs.  Illinois  &c.  R.  R.  Co.,  38  A.  D.  22. 


Negotiability  as  Applied  lo  Stock  Certifleates.  715 

tions,  and  delivered  these  certificates,  with  the  power,  etc., 
to  his  Broker,  "who  in  turn  pledged  them  with  another  Bro- 
ker, the  defendant,  to  secure  certain  transactions  between 
them.  In  an  action  bv  the  co-executors  of  G.  R.  "W.  against 
the  defendant,  it  was  decided  that  they  could  not  recover 
from  the  defendant,  he  having  purchased  in  good  faith,  and 
that  there  was  nothing  to  put  him  upon  an  inquiry.  The 
court  held  that,  if  the  action  had  been  against  the  first 
Broker,  the  plaintiffs  could  have  recovered,  ''  for  they  [the 
Brokers]  participated  in  the  "SATongful  act  of  G.  TI.  TV. ;  the 
transaction  itself  gave  them  notice  of  the  misapplication  ; 
that  the  fact  of  the  power  of  attorney  being  signed  by 
an  executor  made  the  case  no  different  than  if  it  had 
been  signed  by  the  testator  himself,  an  executor  having 
an  absolute  power  of  disposal  over  pei*sonal  effects,  and 
the  bona  fide  alienee  being  perfectly  protected  by  such 
sale."  The  court  distinguished  the  case  from  one  had 
directly  with  trustees,  where  there  is  no  presumption  of  a 
right  to  sell  it,'  or  from  a  case  where  it  appeared  that  the 
party  dealing  with  an  executor  had  notice  of  the  transac- 
tion.^ 

This  decision  was  followed  in  Clemens  vs.  Ilocksher,' 
in  which  case  it  appeared  that  securities  standing  in  the 
names  of  trustees  were  pledged  by  a  firm  of  Stock-brokers 
(of  which  one  of  tlie  trustees  was  a  member)  and  the 
pledgees  were  held  liable  to  the  trust  estate. 

And  if  a  corporati<m  issue;  st(x:k  to  a  trustee,  knowing  the 
name  (jf  tlu;  beneficiary,  it  is  charg('al>l('  with  notice  of  the 
terms  and  limitations  of  the  trust,  and  cannot,  by  any  par- 

•  Dunraii    vh.    .laiirlou,    I'l    Wnll,         •  I'r.ill  vm    Il.iniil.  2S  .\.  J.  K(i.  GO. 
1&5;  Shaw  vs.  Si>encer,   UK)  .Muwm.        '  iH.-i  Th  Si,  170. 
382. 


71G  Sluck-brokers  and  Stock   Exclmui^es. 

ticipation  with  the  trustee  in  ii  violation  o!  the  trust,  defeat 
the  rights  of  the  beneliciary.' 

1  he  effect  of  notice  to  a  purchaser,  which  is  intrinsic  to 
the  muniment  of  title,  is  well  exemplified  in  Atkinson  vs. 
Atkinson,^  In  this  case  the  corporation  issued  a  certilicate 
to  a  guardian  for  ten  shares  of  stock  in  his  capacity  as  such, 
and  also  two  other  shares  to  the  same  guardian  without 
qualifying  him  as  such.  His  assignment  of  the  ten  shares 
was  set  aside  because  of  the  notice  to  the  transferee  con- 
tained in  the  certificate,  while  the  transferee  vf  the  two 
shares  was  protected  because  he  had  no  notice  or  knowledge 
of  the  violation  of  the  trust. 

2.  Notice  dehors  the  documents  of  title. 

If  one  who  buys  stock  of  an  executor  has  notice  that  it 
belongs  to  the  testator's  estate,  and  actual  knowledge  that 
there  are  other  executors  who  do  not  join,  he  is  thereb}'  put 
upon  inquiry  as  to  the  propriety  of  the  sale ;  and,  if  he 
omits  such  inquiry,  will  be  decreed  to  return  the  stock  to 
the  estate  discharged  from  the  lien  of  his  advances.* 

If  a  person  buys  stock  from  one  whom  he  knows  to  be 
acting  in  an  official  capacity,  he  is  chargeable  with  notice  of 
the  legal  duty  imposed  by  law  upon  such  official— e.  g.,  he  is 
bound  to  know  that  an  administrator  is  required  by  law  to 
sell  at  public  sale.* 

A  purchaser  of  stock  is  not  chargeable  with  notice  of  a 
by-law,  however,  Avhich  the  corporation  has  no  authority  to 
make  either  by  its  act  of  incorporation  or  by  general  law  ; 

>Loring  vs.  Salisbury  Mills,  125  Clark,  22  Ch.  Di v.  830;  Simmons  vs. 

Mass.  138.  Bank,    (1891)    1    Ch.    270;   Societe 

'90  Mass.  15.  G6n6rale  vs.  Walker,  11  App.  Cas. 

3  Ellis's  Appeal,  8  Week.   Notes  20. 

Cas.  5.38.     And  see  Roots  vs.  Wil-  *  Xutting  vs.  Thomason,  46  Ga. 

liamson,  38  Ch.  D.  485;  France  vs.  34. 


Neg:otiability  as  Applied  to  Stock  C'ertiticates.  717 

and  is  not  put  upon  inquirv  for  a  lira  dci'lai-ed  bv  such  \iivr 
arisins  out  of  the  indebtedness  of  the  seller  of  the  stock  to 
the  corporation.'  But  he  is  chargeable  "with  notice  of 
original  articles  of  association,  which  have  been  adopted 
into  the  charter  of  the  corporation,  providing  that  a  share- 
holder should  not  transfer  his  stock  as  long  as  he  was  in- 
debted to  the  corporation.-  T\'here  the  owner  of  stock 
delivers  the  certificate  to  his  pledgee  with  a  power  to  trans- 
fer it,  the  fact  that  his  name  is  in  the  certificate  is  not 
notice  of  his  rights  as  against  third  persons,  who  take  it  for 
value  from  the  pledgee.^ 

In  Crocker  vs.  Crocker  *  the  firm  of  L.  &  Co.  advanced 
moneys  to  one  of  the  partners,  Stephen  Crocker,  and  took 
as  security  certain  shares  of  stock  which  they  knew  he  held 
in  trust  for  his  brotlior,  and  not  in  his  own  right  ;  there- 
fore, as  against  the  ce.sful  qi/e  trust,  they  took  nothing  by 
the  fraudulent  transfer. 

In  Jaudon  vs.  Xationnl  City  I>ank  ^  the  ti^ansaction  of  loan 
indicated  that  the  transferee  of  stock  was  n<^t  selling  the 
same  in  the  ordinary  course  of  liis  business  as  trustee,  but 
that  he  was  borrowing  money  for  his  private  use  on  a 
pledge  of  trust  property  ;  and  therefore  they  were  obligetl 
to  disfjori'e. 

And  Stock-brokers  do  not  l)ecome  the  honaji^le  holders  of 
certificates  of  stock  belonging  to  a  customer  of  a  l»ank  and 
ple<lged  with  tlieui  by  tiie  ciishier  of  the  bank  (after  trans- 

'  Dri.scoU  V8.  West  Bradley,  etc  ,  with    .-ict    of    inrorporatioii.    fiirn- 

MfK.  Co.,  59  N.  Y.  90.  iniiiKs  vs.  \Vcl..si,.r.  \:\  Me.  192;  H.ir- 

'  I.*KSctt  vs.  IJaiik  of  SitiR  .Siiiji,  rett  vs.  Union  Mutual  Ins.  Co.,  01 

24  .\.  Y  2X3;  McDowcii  vs.  Hank  of  Milss   ISl. 

Wilniintrton,  otr- ,  2  Del.   1;  I'nion  '  I-VIl  vs    IIovo,  23  How.  Pr.  .'WO. 

Bank  vs.  I.ainl,  2  Wlu-at    .390     And  •  31  \    Y   .107 

of    by-laws    pjLssf*!     in     ficconldru-c  'S    Bl.-itrlif     130 


718  Stock-brokers  and  Stock  Exchanges. 

fer  to  his  name)  to  secure  a  call  loan  (at  exorbitant  interest), 
which  he  alleged  was  for  the  bank,  but  which  in  reality  he 
obtained  for  hhnself.  The  cashier  had  beiMi  buying  and 
carrying  stocks  on  margin  through  the  Stock-brokers  for 
several  years,  and  this  fact,  coupled  witli  the  unusual  cir- 
cumstance that  a  bank  Avould  borrow  a  large  sum  at  an 
usurious  rate  of  interest,  charged  the  Brokers  with  the  duty 
of  making  inquiries,  which  they  wholly  neglected,' 

In  JMerchants'  Bank  vs.  Livingston  ^  it  appeared  that  do 
fendant  L.  delivered  to  defendant  B.  a  certificate  of  stock  as 
collateral  for  a  loan  of  |3,000.  B.  applied  to  ^Y.,  plaintiff's 
agent,  for  a  loan  thereon  of  $S,000,  stating  that  he  wanted 
it  for  a  Client.  AY.  agreed  to  nuike  the  loan  if  B.  wouhl 
procure  a  proper  power  of  attorney  to  be  attached  to  the 
certificate.  B.,  by  representing  that  he  ought  to  have  the 
instrument  to  secure  his  loan,  procured  from  L.  a  transfer 
and  irrevocable  power  of  attorney  to  make  a  transfer  exe- 
cuted in  blank.  B.  filled  up  the  blanks  save  the  name  of 
transferee  and  attorney,  and  delivered  it  with  the  certificate 
to  AY.,  who  thereupon  made  the  loan.  B.  had  no  authority 
from  L.  to  borrow  or  to  pledge  the  stock.  In  an  action  to 
foreclose  plaintiff's  alleged  lien  upon  the  stock — held,  that 
as  B.  did  not  claim  to  be  the  owner  of  the  stock,  but 
only  to  be  acting  as  agent  for  the  owner,  and  as  he  had,  in 
fact,  no  authority  or  apparent  authority  so  to  act,  L.  was 
not  estopped  from  asserting  his  title  to  the  stock,  and  plain- 
tiff could  not  assert  a  lien  save  at  most  for  the  amount  for 
which  the  stock  was  pledged  to  B. ;  that  while  the  transfer 
and  power  of  attorney  gave  to  B.  an  apparent  ownersliij)  in 
case  he  had  claimed  title  or  an  apparent  authority  to  sell  as 

'  Williamson  vs.  Mason,  12  Hun,        -  74  X.  Y.  223. 
97,  105. 


Negotiability  as  Applied  to  Stock  Certificates.  719 

aofent,  it  did  not  hold  him  out  as  authorized  to  make  a  loan 
or  to  pledge  the  stock,  or,  at  most,  it  only  indicated  that  he 
could  pledge  the  stock  for  an  authorized  loan.  The  court 
said :  "  If  he  [B.]  had  been  authorized  by  L.  to  borrow  the 
money,  he  could  probably  have  pledged  the  stock  in  his 
possession  to  secure  it.  And  he  could  have  taken  the  cer- 
tificate and  power  of  attorney  and  gone  into  the  market 
claiming  to  act  as  the  agent  of  the  plaintitf,  and  have  sold 
the  stock  and  given  a  good  title.  The  possession  of  the 
certificate  and  full  power  of  attorney  wouj^l  have  given  him 
the  apparent  authority  to  sell."^ 

3.  Cases  in  lohich  tlic  hona  fide  purchaser  or  holder  ac- 
quires the  right  to  hold  the  certificate  hy  reason  of  the  negli- 
gence or  carelessness  of  the  oicner. 

The  owner  of  stock  certificates  may  also  lose  his  title  to 
the  same  by  his  own  negligence  or  carelessness  in  respect 
thereto,  the  rule  of  law  being  that,  where  one  of  two  in- 
nocent persons  nmst  suffer  by  the  fi-aud  or  negligence  of  a 
third,  whichever  has  accredited  him  must  bear  the  loss.^ 
And  a  question  as  to  whetherit  was  negligence  in  the  [)laiii- 
tiffs  to  leave  their  certificates  with  their  clerk  or  bookkeeper, 
so  that  the  latter  could  fill  in  the  blanks  and  transfer  them 
to  innocent  purchasers,  is  one  for  the  jury.^  A  few  of  the 
leading  cases  will  fully  illustrate  the  rule  up<m  this  sub- 
ject. 

In  Davis  vs.  Bank  of  England  *  Hest,  C.  .1.,  says  :  "  It  has 
ever  been  an  object  of  the  legislature  to  give  facility  to 
the   transfer  of  shares  in   the   i)ublic  fun<ls.     This  facility 

'  Sm-  iilso  I'ortfT  VH.  ParkH,  -19  X.  2  Wr-ck.  Not. -s  (its    .  In  .  ;i_'J;  Mim- 

Y.  .Wl,   which  Ih  u  chho.  of  a<tual  (l<trfT  vh   Wickorsham,  03  Pa.  St.  87. 

notice.  '  Aiili  vs   Colki't,  Hupru. 

»  Aiill  VH.  Colkift,  :W  Log.  Int.  -IJ;  '  J  Hii.n.  H'M,   «0S. 


720  Stock-brokers  jukI  Slock   Kxclianses. 

of  transfer  is  one  of  the  advantages  belonging  to  this  species 
of  property,  and  this  advantage  would  be  entirely  destroyed 
if  a  purchaser  should  b(^  re(|uii'ed  to  look  to  the  regularity 
of  the  ti'ansfei's  to  all  the  various  persons  through  whom 
such  stock  had  ))ass('(l.  Indeed,  from  the  manner  in  which 
stock  passes  from  man  to  man,  from  the  union  of  stocks 
bought  of  different  persons  under  the  same  name,  and  the 
impossibility  of  distinguishing  what  was  regularly  trans- 
ferred from  what  was  not,  it  is  impossible  to  trace  the  title 
of  stock  as  you  can  that  of  an  estate."  These  views  are 
well  illustrated  Ijy  the  history  of  the  Bank  of  England 
stock.  There  was  a  time  when  the  Bank,  in  dealing  with 
executors  or  trustees  under  a  will,  had  to  take  cognizance 
of  the  will  and  of  the  limitations  of  the  trust  therein  con- 
tained ;  but  this  became  so  onerous  when  almost  every 
man  in  the  kingdom  became  the  owner  of  its  stock  that  a 
relaxation  of  the  rule  became  a  necessity.  As  was  re- 
marked by  the  Lord  Chancellor,  in  Ilartga  vs.  Bank  of  Eng- 
land,^ "  All  the  former  strictness  of  practice  in  the  Bank 
could  not  have  prevented  the  stock  from  being  put  into  the 
name  of  Stonehouse  [executor] ;  Avhen  once  put  into  his 
name,  to  which  he  was  distinctly  entitled,  could  the  Bank 
look  farther  aud  inquire  whether  the  stock  standing  in  his 
name  was  trust  stock?  If  so,  the  Bank  would  be  charged 
with  all  the  trusts  in  the  kingdom.  It  was  enacted  by  1 
Geo.  I.  c.  19,  that  such  portion  of  a  will  as  related  to  the 
disposition  of  stock  should  be  registered  in  the  office  of  the 
chief  accountant  of  the  Bank  of  England  ;  and  in  default 
thereof  the  Bank  need  take  no  notice  of  it,  but  might  allow 
the  executor  full  control  as  to  the  transfer  and  disposition 

'  3  Ves.  .55. 


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